Series 66, or Uniform Combined State Law Examination practice test questions. See also Series 66 Practice Test Questions Part I
1. James Walker owns a small but profitable pharmaceutical company in New Jersey. His company has a new arthritis pain reliever in the pipeline for FDA approval, and he is conducting extensive research and clinical trials. The FDA has just announced that all new clinical trials must now include the use of an expensive heart monitor to ensure safety to heart patients. This is an example of which type of risk:
A. Health risk
B. Investment risk
C. Business risk
D. Regulatory risk
E. Market risk
2. The Baker family bought a new house next to their current home. Their children are grown up and are now having children of their own. Their Baker parents want to keep them nearby and would also like to pass the new house to their children. Mr. Baker worries about debt and Mrs. Baker worries about taxes. The family’s financial advisor recommends a family limited partnership. Which of the following statements is NOT true regarding family limited partnerships?
A. It is used as a means of minimizing estate and gift taxes.
B. It does not require a legitimate business purpose.
C. It is difficult for the children”s creditors to attach the partnership’s assets.
D. The children would become the limited partners of their parents
3. A company has just suffered a huge loss as a result of poor management and a massive strike; they may need to file Chapter 11 soon. This is an example of which type of risk:
A. Market risk
B. Interest-rate risk
C. Business risk
D. Opportunity risk
E. Inflation risk
4. Which of the following does not describe dollar cost averaging?
A. A fixed amount is invested at regular intervals.
B. Investors are protected against losses during steady declines.
C. An investor buys more shares when prices are low and fewer shares when prices are high. D. Investors must consider their ability to continue funding the account whether prices are high or low
5. Mr and Mrs Smith have a very comfortable income from their import business, which is a limited liability company (LLC). They seek advice from their financial advisor regarding a new investment that would simultaneously act as a tax shelter, which they hope will allow them to have more money to leave to their estate. Which two of the following should their advisor consider when making a suitable recommendation?
I. Tax Situation
III. Cash Flow
IV. Executor of Estate
V. General Partnership
A. III and IV
B. I and V
C. II and IV
D. I and III
6. Jewels Unlimited plans to offer $200,000 in securities to finance its expansion into two neighboring states. It does not plan to register federally with the SEC. What method of filing is required at the state level?
A. Filing by coordination
B. Filing by letter of intent
C. Registration by qualification
D. Notification by filing
7. John Dormer is an investment advisor for Land Star Capital Investments. His wife, Sheryl, is also an advisor at the same firm. Their 10th wedding anniversary is coming up and Sheryl wants to take John on a holiday. In order to fund the trip, Sheryl has collaborated with a friend outside of the firm and is selling interests in a promising start-up to wealthy colleagues. This practice is known as:
A. Initial Public Offering
C. Venture Capital easement
D. Selling away
8. Karen is the executor and sole heir for her parents” modest estate. Upon their death, she receives instructions that she will inherit all of their money on the condition that she invest according to a Prudent Person Rule. Her parents know that Karen has been a bit of a spendthrift and they want her to use her inheritance wisely. Which of the following best represents their philosophy?
A. Marginable securities
B. Reasonable income and preservation of capital
C. Short-term gains, long-term income
D. High-yielding blue-chip stocks
Comprehensive Series 66 Study Guide and Practice Questions
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1. D This is an example of regulatory risk, which is the investment risk that may result from changes in state or federal laws.
2. B Family limited partnerships are set up in order to minimize estate and gift taxes, but they must have a legitimate business purpose other than just to avoid taxes. All of the other choices are true. Additionally, the parents set themselves up as general partners and transfer the property to the partnership. While they must pay taxes on the gift to the children of the limited partnership, that tax rate would be less than if they transferred the assets directly.
3. C The common stock of this company would be a valuable investment vehicle if the business were successful. When business fails or declines, however, common stock value suffers. Because common stockholders are at the bottom of the priority list in the event of bankruptcy, the stock could become worthless. This is business risk.
4. B All choices are true about dollar cost averaging, with the exception that investors are not protected from losses that come from steadily declining markets. In addition, investors may sustain a loss at redemption if the total cost of their shares exceeds the current market value.
5. D When determining a suitable investment, it is important to understand the client’s current financial situation. A profile should be created with includes, current income, cash flow, company balance sheet, current tax situation, net worth, amount of liquidity and the investment strategy currently in place. The Smith’s has a specific goal in mind: to shelter their income from tax. Of the choices listed, cash flow and current tax situation are the only possible correct answers. For this particular goal, the heirs or the executor of the estate are not relevant factors.
6. C Jewels Unlimited will need to register by qualification, which does not require registration with the SEC.
7. D This practice is known as selling away and is considered fraudulent activity under the Uniform Securities Act. An agent who is executing transactions that do not appear on their broker-dealer books is said to be “selling away.”
8. B The Prudent Man/Person Rule is an investment standard applied to fiduciaries or trustees to guide their actions. The rule suggests that investment decisions should be made wisely and intelligently, as a prudent person would. The basic premise of the rule is to preserve capital and create a reasonable level of growth.
Also see our Financial Math Practice Questions
Comprehensive Series 66 Study Guide and Practice Questions Complete Series 66 study guide prepared by a dedicated team of expert researchers. Effective, affordable help from the most comprehensive test preparation company in the world!
Modified: October 13th, 2017
Published: May 30th, 2012