Series 65 Practice Test

Series 65 Portfolio Management & Trading Practice Questions

Portfolio Management & Trading makes up 6 of every 50 questions on a Tigertest Series 65 practice test. Here are 10 of the 24 questions on it, each with the answer and the reason.

Updated 2026-11-10 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. 1. The risk-free rate is 3%, the market return is 8%, and a stock's beta is 1.4. Under CAPM, its expected return is:

   • A.8%
   • B.10%
   • C.11.2%
   • D.14.2%

   Answer: B. CAPM: 3% + 1.4 x (8% - 3%) = 3% + 7% = 10%. Multiplying the whole market return by beta (11.2%) skips the risk-free step.

2. 2. Under Modern Portfolio Theory, adding an asset with low correlation to the rest of a portfolio usually:

   • A.Removes all market risk
   • B.Has no effect on risk
   • C.Raises both risk and return
   • D.Lowers overall risk

   Answer: D. Combining assets that do not move together cuts total volatility. Market risk still remains, because diversification only removes unsystematic risk.

3. 3. Portfolios that give the highest expected return for each level of risk lie on the:

   • A.Efficient frontier
   • B.Capital gains line
   • C.Security market line
   • D.Yield curve

   Answer: A. Modern Portfolio Theory plots optimal portfolios along the efficient frontier. Any portfolio below it could earn more for the same risk.

4. 4. A believer in the semi-strong form of the efficient market hypothesis thinks that:

   • A.Chart patterns predict prices
   • B.Fundamental analysis beats the market
   • C.Public data is already priced in
   • D.Insider information is priced in

   Answer: C. Semi-strong efficiency says prices already reflect all public information, so neither technical nor fundamental analysis gives an edge. Only the strong form includes inside information.

5. 5. An adviser sets a client's long-term mix at 60% stocks and 40% bonds and rebalances to it each year. This is:

   • A.Sector rotation
   • B.Market timing
   • C.Strategic allocation
   • D.Tactical asset allocation

   Answer: C. Strategic allocation sets long-term targets from the client's goals and returns to them by rebalancing. Tactical allocation makes short-term shifts away from the targets.

6. 6. An adviser temporarily moves from 60% to 70% stocks because she expects equities to outperform this year. This is:

   • A.Tactical asset allocation
   • B.Passive management
   • C.Dollar-cost averaging
   • D.Strategic asset allocation

   Answer: A. A deliberate short-term tilt away from the long-term mix to exploit expected conditions is tactical allocation.

7. 7. A client wants low costs and believes managers rarely beat the market after fees. The best fit is:

   • A.A market-timing service
   • B.An active stock picker
   • C.A sector rotation fund
   • D.A passive index fund

   Answer: D. Passive management holds an index to match its return at low cost. It suits investors who accept market returns rather than paying to try to beat them.

8. 8. A manager buys companies with low price-to-earnings and price-to-book ratios that seem out of favor. This style is:

   • A.Income investing
   • B.Value investing
   • C.Growth investing
   • D.Momentum investing

   Answer: B. Value managers look for stocks priced cheaply relative to earnings or assets. Growth managers pay higher multiples for faster earnings growth.

9. 9. A retiree wants regular cash from her portfolio with modest growth. The style that fits best is:

   • A.Momentum
   • B.Income
   • C.Aggressive growth
   • D.Capital appreciation

   Answer: B. An income style favors bonds, dividend-paying stocks and similar holdings that produce steady cash flow.

10. 10. A manager shifts money into consumer staples and utilities as the economy heads into a downturn. This is:

    • A.Indexing
    • B.Buy and hold
    • C.Dollar-cost averaging
    • D.Sector rotation

    Answer: D. Sector rotation moves among industries as the business cycle changes. Defensive sectors such as staples and utilities tend to hold up better in slowdowns.