Series 65 Cash & Fixed Income Practice Questions
Cash & Fixed Income makes up 5 of every 50 questions on a Tigertest Series 65 practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on NASAA's Series 65 test specifications. Original questions; 50 per test, weighted like the real 130-question exam. Not affiliated with NASAA or FINRA.
1. A client wants an insured place to park cash she may need any day. The best fit is:
- A.A corporate note
- B.A bank demand deposit
- C.A long-term bank CD
- D.A 30-year Treasury bond
Answer: B. A demand deposit (checking account) is FDIC insured within limits and can be withdrawn at any time. A CD ties the money up until maturity or charges a penalty.
2. Which money market instrument is an unsecured short-term note issued by a corporation?
- A.A negotiable CD
- B.A repurchase agreement
- C.A Treasury bill
- D.Commercial paper
Answer: D. Commercial paper is unsecured corporate debt, usually maturing in a few months. Treasury bills are federal government obligations.
3. A client in a state with a high income tax wants to reduce state tax on her interest income. Which holding helps most?
- A.Treasury notes
- B.Foreign government bonds
- C.Corporate bonds
- D.Bank CDs
Answer: A. Interest on Treasury securities is taxed federally but exempt from state and local income tax. Corporate bond and CD interest is taxed by both.
4. A Treasury Inflation-Protected Security with $1,000 principal pays a 2% coupon. CPI rises 4% over the year. The principal becomes about:
- A.$1,060
- B.$1,000
- C.$1,040
- D.$1,020
Answer: C. TIPS principal is indexed to the CPI, so it rises 4% to about $1,040, and the 2% coupon is paid on the adjusted principal.
5. In a year of deflation, the principal of a Treasury Inflation-Protected Security:
- A.Is adjusted up
- B.Converts to a T-bill
- C.Is adjusted down
- D.Stays at its last level
Answer: C. TIPS principal falls with the CPI in deflation, which lowers the interest paid. At maturity the investor still receives the greater of adjusted or original principal.
6. A bond backed by a pool of auto loans is best described as:
- A.An asset-backed security
- B.A general obligation bond
- C.A mortgage bond
- D.A debenture
Answer: A. Asset-backed securities are paid from a pool of receivables such as auto loans or credit card balances. A mortgage bond is secured by real property of the issuer.
7. A city bond is repaid only from water and sewer fees. If those fees fall short, bondholders:
- A.Are paid by the state
- B.Can force a property tax increase
- C.Are paid from the general fund
- D.Have no claim on city taxes
Answer: D. A revenue bond is backed only by the revenue of its project. The city's taxing power stands behind general obligation bonds, not revenue bonds.
8. An insured municipal bond's rating mainly reflects:
- A.The state's credit rating
- B.The insurer's credit
- C.The issuer's tax base alone
- D.The bond's coupon rate
Answer: B. Bond insurance guarantees principal and interest, so the rating largely follows the insurer's credit. If the insurer is downgraded, the bond can be too.
9. An investor in the 35% federal bracket is choosing between munis and taxable bonds. A 4.55% municipal bond has a taxable-equivalent yield of:
- A.5.55%
- B.7.0%
- C.6.14%
- D.2.96%
Answer: B. Taxable-equivalent yield = municipal yield / (1 - tax rate) = 4.55% / 0.65 = 7.0%. Multiplying by 1.35 (6.14%) understates it.
10. A U.S. investor buys bonds issued by a foreign corporation in that country's currency. Compared with a similar U.S. bond, the added risk is:
- A.Inflation risk
- B.Prepayment risk
- C.Call risk
- D.Currency risk
Answer: D. Payments in a foreign currency are worth more or fewer dollars as exchange rates move. Foreign bonds can also carry political and liquidity risk.
Practice all 20 cash & fixed income questions, and the rest of the 200-question bank, in the free Series 65 training sets. Questions you miss come back until you have mastered them.
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