Series 65 Funds, Alternatives & Insurance Practice Questions
Funds, Alternatives & Insurance makes up 4 of every 50 questions on a Tigertest Series 65 practice test. Here are 10 of the 16 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 closed-end fund's NAV is $22.00 and its shares trade at $19.80 on an exchange. The shares trade at a:
- A.2.2% discount
- B.10% discount
- C.10% premium
- D.11% discount
Answer: B. ($19.80 - $22.00) / $22.00 = -10%, a discount to NAV. Closed-end shares trade at whatever the market will pay, which can differ from NAV.
2. Which pooled investment is generally limited to accredited investors and may use leverage and short selling with few restrictions?
- A.An index mutual fund
- B.A unit investment trust
- C.A money market fund
- D.A hedge fund
Answer: D. Hedge funds are private funds sold mainly to accredited or qualified investors, so they avoid many limits on leverage, shorting and concentration that apply to registered funds.
3. A client invests in a venture capital fund. The main risks she should understand are:
- A.Illiquidity and failures
- B.Currency risk only
- C.Daily price swings only
- D.Interest rate and call risk
Answer: A. Venture capital funds back early-stage companies, lock up capital for years and expect many holdings to fail. Investors usually cannot redeem on demand.
4. A private equity fund typically earns its return by:
- A.Holding Treasury bills
- B.Lending to homeowners
- C.Buying and fixing companies
- D.Trading listed stocks every day
Answer: C. Private equity buys whole companies or large stakes, often with borrowed money, improves or restructures them, and sells them years later.
5. A client wants a pooled fund she can trade during the day with a limit order. The fit is:
- A.A non-traded REIT
- B.A unit investment trust
- C.An exchange-traded fund
- D.An open-end mutual fund
Answer: C. ETFs trade on exchanges at market prices throughout the day, so investors can use limit and stop orders. Mutual funds price once a day at NAV.
6. Listed REIT prices fall 20% in a year, while a client's non-traded REIT still shows its old share value. The likely reason is:
- A.No market sets its price
- B.It is insured by the FDIC
- C.It holds only Treasury bills
- D.It owns better properties
Answer: A. A non-traded REIT's value is an estimate set by the sponsor, not a market price, so it can lag real conditions. That, and limited redemptions, are key risks.
7. A mutual fund's new manager starts buying small growth stocks for a fund sold as large-cap value. This is called:
- A.Survivorship bias
- B.Tracking error
- C.Window dressing
- D.Style drift
Answer: D. Style drift is a fund moving away from its stated style, which can upset a client's asset allocation. Advisers watch for it along with manager changes.
8. When comparing an actively managed large-cap fund's performance, the most fitting benchmark is:
- A.The Consumer Price Index
- B.A large-cap stock index
- C.A small-cap stock index
- D.A bond index
Answer: B. A benchmark should match the fund's style and holdings. Measuring a large-cap fund against small caps or bonds tells the client nothing useful.
9. An exchange-traded note differs from an ETF because the ETN:
- A.Pays a fixed coupon
- B.Has issuer credit risk
- C.Owns the index securities
- D.Cannot trade on an exchange
Answer: B. An ETN is an unsecured debt note whose return tracks an index. If the issuing bank fails, holders are general creditors; an ETF owns its underlying assets.
10. A client buys a 2x leveraged ETF to hold for several years. The main concern is:
- A.It pays no dividends
- B.It is not registered
- C.It cannot be sold short
- D.Daily resets skew returns
Answer: D. Leveraged and inverse funds reset each day, so over longer periods their returns can drift far from twice the index, especially in choppy markets.
Practice all 16 funds, alternatives & insurance 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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