An analyst evaluates a project and finds that the discount rate at which the net present value of all its cash flows equals zero is higher than the required rate of return. Based on this alone, the analyst should:

A. accept the project, because its internal rate of return exceeds the required rate of return

B. reject the project, because a positive internal rate of return is a warning sign

C. reject the project, because net present value is negative whenever a discount rate exists

D. conclude the analysis is incomplete without knowing the payback period

Two mutual funds posted the same average annual return over five years, but Fund X had a much higher standard deviation of returns than Fund Y. Which statement is most accurate?

B. Fund Y had a higher Sharpe ratio, since it achieved the same return with less total risk

A. Fund X delivered a better risk-adjusted return because higher standard deviation means higher quality

C. The two funds are identical investments because their average returns match

D. Standard deviation measures only systematic risk, so it says nothing about the funds

A stock trades at a market price well below its book value per share, giving it a price-to-book ratio under 1.0. An analyst reviewing only this ratio might reasonably infer that the stock:

C. may be undervalued, though the ratio must be compared to industry peers and context before concluding

A. is guaranteed to be undervalued and should be purchased immediately

B. has a price-to-earnings ratio that must also be below 1.0

D. pays no dividend, since price-to-book measures dividend policy

To gauge whether a company can meet its immediate obligations using only its most liquid assets, an analyst would rely most heavily on the:

D. quick ratio (acid-test), which excludes inventory from current assets

A. debt-to-equity ratio, because it captures the entire capital structure

B. beta, because it measures the volatility of the balance sheet

C. price-to-earnings ratio, because earnings drive liquidity

A bond is trading at a discount to par because its coupon rate is below current market yields. For this bond, the correct ordering of yields from lowest to highest is:

B. coupon rate, then current yield, then yield to maturity

A. yield to maturity, then current yield, then coupon rate

C. current yield, then coupon rate, then yield to maturity

D. all three are equal for a discount bond

A client worried about rising interest rates asks which of two otherwise similar bonds carries the most price sensitivity to a rate increase. The correct answer is the bond with the:

A. longer duration, because higher duration means greater price sensitivity to rate changes

B. shorter duration, because shorter bonds fall faster

C. higher coupon, because coupons magnify rate risk

D. higher credit rating, because quality increases rate sensitivity

A client is comparing a fixed annuity and a variable annuity. Which statement correctly distinguishes them?

D. A variable annuity is a security sold with a prospectus, while a fixed annuity is generally an insurance product and not a security

A. Both are securities that must be sold with a prospectus

B. Neither can be held in a tax-deferred manner

C. A fixed annuity shifts investment risk to the contract owner, while a variable annuity shifts it to the insurer

A young investor plans to hold a mutual fund position for a short period, likely under two years. Ignoring all other factors, which share class is generally least appropriate to recommend for that short horizon?

C. Class A shares, whose front-end sales load is generally best absorbed over a long holding period

A. Class C shares, because their level load suits short holding periods

D. An exchange-traded fund with no sales load

For a traditional open-end mutual fund that carries a front-end sales load, the public offering price paid by an investor is best described as:

B. the net asset value per share plus the sales load

A. the net asset value per share minus the sales load

C. whatever price the fund trades at on the exchange, which may be above or below net asset value

D. always exactly equal to net asset value, because loads are illegal

A client needs the ability to sell a pooled investment on short notice at a predictable price. Which vehicle is generally the LEAST suitable for that liquidity need?

C. A non-traded real estate investment trust, whose redemption may be restricted or unavailable

A. An open-end mutual fund redeemable at net asset value each day

B. An exchange-traded fund that trades throughout the day

D. A large-cap equity ETF with heavy daily volume

An investor owns 100 shares of a stock and wants to protect against a sharp decline while keeping the upside. The most direct strategy is to:

D. buy a protective put on the shares

A. write a covered call on the shares

B. buy a call on a different stock

An advisor notes that a broad-market ETF tends to distribute fewer taxable capital gains than a comparable actively managed mutual fund. The primary structural reason is that:

B. the in-kind creation and redemption process lets ETFs limit realized capital gains

A. ETFs are exempt from federal taxation

C. ETFs never hold appreciated securities

D. mutual funds are prohibited from distributing capital gains

A treasurer wants to park corporate cash for 60 days in a highly liquid, low-risk instrument. Which of the following best fits the definition of a cash equivalent?

A. Treasury bills and high-quality commercial paper

B. A 20-year corporate bond from an investment-grade issuer

C. Shares of a small-cap growth stock

D. A non-traded real estate limited partnership

A client in a low tax bracket today expects to be in a much higher bracket in retirement and wants to avoid required minimum distributions during their own lifetime. Which account best fits these goals?

B. A Roth IRA, because qualified distributions are tax-free and there are no lifetime required minimum distributions for the owner

A. A traditional IRA, because contributions are always deductible

C. A traditional IRA, because Roth accounts force distributions at age 73

D. A nonqualified brokerage account, because IRAs cannot hold equities

A trustee of a private-employer 401(k) plan is deciding how to manage plan assets. Under ERISA, the trustee must act primarily:

C. solely in the interest of the plan participants and beneficiaries, with prudence and diversification

A. in the best interest of the employer that sponsors the plan

B. to maximize short-term returns regardless of risk

D. to minimize the employer's contribution costs

A client realized $10,000 of capital losses this year but had no capital gains. With respect to the client's ordinary income for the year, the client may generally:

D. deduct up to $3,000 of net capital losses against ordinary income and carry the remainder forward

A. deduct the entire $10,000 against ordinary income this year

B. double the loss and deduct $20,000

C. deduct nothing, because losses are only useful against gains

A client holds highly appreciated stock and asks about the tax consequence if the shares pass to heirs at the client's death rather than being sold during life. Generally, the heirs will:

A. receive a basis stepped up to the fair market value at the date of death, eliminating the prior unrealized gain

B. inherit the client's original cost basis (carryover basis)

C. owe capital gains tax on the full appreciation immediately at death

D. be barred from ever selling the shares

An advisor builds a portfolio spread across many sectors and asset classes. This diversification is designed primarily to reduce:

B. unsystematic (company- and sector-specific) risk, while systematic risk remains

A. systematic (market) risk, which diversification eliminates entirely

C. interest-rate risk on the entire market

D. the need to ever monitor the portfolio again

A client invests a fixed dollar amount into a fund every month regardless of price. Which statement about this dollar-cost averaging approach is accurate?

C. It results in a lower average cost per share than the average price per share, but does not guarantee a profit

A. It guarantees a profit over time

B. It buys more shares when prices are high and fewer when prices are low

D. It eliminates all market risk

An advisor sets a long-term target mix of 60% stocks and 40% bonds based on the client's goals and risk tolerance, then rebalances back to those weights periodically. This approach is best described as:

D. strategic asset allocation with periodic rebalancing to target weights

A. tactical asset allocation driven by short-term market timing

B. pure market timing with no long-term plan

C. sector rotation based on the economic cycle

A 68-year-old retiree with a low risk tolerance depends on her portfolio for current income and capital preservation. Which recommendation is most consistent with her profile?

B. A diversified mix weighted toward high-quality income-producing securities

A. Concentrating the account in a single speculative small-cap stock

C. A leveraged, inverse ETF held as a long-term core holding

D. A portfolio of illiquid private placements

A state government employee participates in a 457(b) deferred compensation plan. Compared with a typical 401(k), a distinguishing feature of the 457(b) is that:

A. distributions are generally not subject to the 10% early-withdrawal penalty that applies before age 59 1/2 in a 401(k)

B. contributions are made only with after-tax dollars

C. it can never be offered by government employers

D. it prohibits any employee salary deferrals

To evaluate a portfolio manager's performance independent of the timing and size of client cash flows into and out of the account, the most appropriate measure is the:

A. dollar-weighted return (internal rate of return)

An investor sells a stock at a loss and repurchases the same stock one week later to maintain the position. With respect to the realized loss, the wash sale rule generally:

C. disallows the current deduction because a substantially identical security was repurchased within the restricted window around the sale

A. allows the loss to be deducted immediately with no restriction

B. converts the loss into a taxable gain

D. applies only to bonds, never to stocks

Compared with an individual taxpayer, a trust that retains its income generally reaches the top marginal tax rate:

B. at a much lower income level than an individual, so retained trust income is often taxed heavily

A. at a much higher income level than an individual

C. never, because trusts are always tax-exempt

D. only if the trust holds municipal bonds

A parent wants a tax-advantaged account specifically to save for a child's qualified higher-education expenses, with high contribution capacity and tax-free growth when used for education. The most fitting vehicle is a:

A. traditional IRA in the parent's name

Two co-owners hold a brokerage account as joint tenants with rights of survivorship. When one owner dies, the account interest generally:

D. passes automatically to the surviving joint tenant outside of probate

A. passes through the deceased owner's probate estate to their heirs

B. is split among the deceased owner's creditors before anyone else

C. is frozen permanently and cannot be accessed by anyone

An advisor who believes markets are broadly efficient and that consistently beating a benchmark after costs is very difficult would most logically favor:

A. low-cost passive index strategies

B. high-turnover active management to exploit mispricings

C. concentrated bets on a few securities the advisor considers mispriced

D. frequent market timing based on short-term forecasts

Under the Uniform Securities Act, which combination of elements generally brings a person within the definition of an "investment adviser"?

C. Providing advice about securities, as a business, for compensation

A. Trading securities for one's own account and holding them long term

B. Executing customer trades without giving any advice

D. Publishing a bona fide financial newspaper of general circulation

A large advisory firm is registered with the SEC as a federal covered adviser. A state in which it does business:

D. may require a notice filing and fee, but cannot impose substantive registration requirements beyond that

A. may require the firm to fully register at the state level and pass a state exam

B. may force the firm to deregister from the SEC

C. has no authority of any kind over the firm or its personnel

An individual works as an investment adviser representative for a federal covered (SEC-registered) adviser and has a place of business in a particular state. With respect to that state, the individual generally:

B. must still register as an IAR at the state level

A. need not register at all, because the adviser is SEC-registered

C. must register the adviser firm with the state instead

D. must register only with the SEC as an individual

A clerical employee at an advisory firm answers phones, files paperwork, and schedules meetings, but never gives advice, manages accounts, or solicits advisory clients. With respect to IAR registration, this person is generally:

A. not an IAR, because purely clerical and administrative work does not fall within the definition

B. required to register as an IAR like the advisory staff

C. required to register as an investment adviser (firm)

D. required to register as a broker-dealer agent

A state-registered investment adviser is deemed to have custody of client assets. Which practice is generally required as a condition of maintaining that custody?

C. Using a qualified custodian and ensuring clients receive account statements from that custodian at least quarterly

A. Holding client securities personally in the adviser's own safe

B. Guaranteeing clients against any investment loss while assets are held

D. Prohibiting clients from ever seeing their account statements

Which statement best captures the general standard-of-conduct difference between an investment adviser and a broker-dealer agent?

D. An investment adviser owes a fiduciary duty to clients, while a broker-dealer agent has a suitability/best-interest obligation on recommendations

A. Both owe an identical fiduciary duty in all respects

B. Neither owes any duty to clients under state or federal law

C. A broker-dealer agent owes a fiduciary duty, while an adviser owes nothing to clients

Under the soft-dollar safe harbor, an adviser that directs client brokerage to a firm in exchange for services may generally use those commissions to pay for:

B. eligible research and brokerage services that benefit clients

A. the adviser's office rent and furniture

C. the adviser's personal vacation travel

D. salaries of the adviser's administrative staff

An investment adviser wants to charge a fee based on the capital gains in a client's account. Under the applicable rules, such a performance-based fee is generally permissible only when the client is:

A. a qualified client meeting the required assets-under-management or net-worth threshold

B. any retail client who signs a consent form

C. a first-time investor with no prior experience

D. unable to be charged any asset-based fee

Under the model rules governing investment advisory contracts, an advisory contract generally must:

B. be in writing, describe the services and fees, and provide that it cannot be assigned without the client's consent

A. be oral, to keep the relationship flexible

C. guarantee a minimum rate of return to the client

D. allow the adviser to assign the contract freely to any other firm

An IAR tells a prospect: "Because I am registered in this state, the securities Administrator has determined that I am qualified and has endorsed my advice." This statement is:

C. unlawful, because registration is not a finding of qualification or an endorsement by the Administrator

A. accurate, because registration is a finding of competence

B. acceptable if the prospect signs an acknowledgment

D. acceptable only for federal covered advisers

Which of the following statements by a registered person would be a prohibited practice?

D. "I guarantee this portfolio will not lose money and will return at least 8% per year."

A. "This bond fund carries interest-rate risk that could reduce its value."

B. "Diversification can help manage, but not eliminate, risk."

C. "Past performance does not guarantee future results."

A client offers to lend money to their broker-dealer agent to help with a personal expense. Under the model conduct rules, an agent borrowing from a customer is:

A. a prohibited practice, subject only to narrow exceptions such as a customer in the lending business or a close family relationship, with firm approval

B. freely permitted as a private financial matter

C. permitted whenever the interest rate is above market

D. permitted if the agent repays within one year

An agent wants to share in the profits and losses of a customer's account. Under the model conduct rules, this is generally permissible only if:

B. the customer provides written consent and the agent shares in proportion to the agent's own financial contribution (with a limited family exception)

A. the customer verbally agrees, with no other conditions

C. the agent contributes nothing but takes a larger share of the profits

D. the account has existed for at least five years

An investment adviser wishes to exercise discretion (choosing the security, amount, and action) in a client's account without approving each trade in advance. Before doing so, the adviser generally must obtain:

C. written authorization from the client, typically in the advisory contract or a limited power of attorney

A. nothing, because advisers automatically have discretion

B. the Administrator's personal sign-off on each trade

D. a verbal understanding confirmed after the fact

An IAR receives material nonpublic information about a company from a corporate insider and trades on it in client accounts. This conduct is:

D. prohibited insider trading, because trading on material nonpublic information is barred regardless of the source

A. permitted, because the IAR is not employed by the company

B. permitted because tips received from others are not covered

C. permitted if the resulting gains benefit the clients

A broker-dealer agent privately arranges securities transactions in an outside product for compensation without the knowledge or approval of the employing firm. This is best described as:

A. selling away, a prohibited practice absent the firm's knowledge and approval

B. a permissible outside business activity

C. acceptable because the firm does not offer the product

D. acceptable because the customers were told about it

In an agency cross transaction, an investment adviser acts for both the buyer and the seller in the same trade. Under the model rule, the adviser generally must:

D. obtain client consent and provide the required disclosures about the conflict, and may not have recommended the transaction to both parties

A. keep the dual role confidential from both clients

B. refuse to keep any records of the transaction

C. guarantee both clients a profit on the trade

Which of the following is generally EXCLUDED from the definition of a "broker-dealer" under the Uniform Securities Act?

C. An agent, an issuer, or a bank acting within its traditional functions

A. A firm with an office in the state soliciting retail customers

B. A firm that makes a market in securities for state residents

D. A firm that maintains customer accounts for state residents

Applying the Howey framework, which of the following is most likely a "security"?

A. An investment of money in a common enterprise with an expectation of profits derived from the efforts of others

B. A fixed whole-life insurance policy with guaranteed cash value

C. A commodity such as physical gold held for personal use

D. A consumer mortgage on the borrower's own residence

Which of the following actions is within the authority of a state securities Administrator?

D. Conducting investigations, issuing subpoenas, and denying, suspending, or revoking registrations after due process

A. Sentencing a violator to prison without any court proceeding

B. Guaranteeing the performance of registered securities

C. Awarding money damages directly to harmed investors

A client was sold a security through a material misrepresentation. Under the civil-liability provisions of the Uniform Securities Act, the client may generally be entitled to:

A. recover the amount invested plus interest, minus any income received (a rescission-type remedy), subject to the applicable conditions

B. no remedy, because securities sales are always final

C. an automatic tripling of any gains

D. free replacement securities from the Administrator

An IAR reasonably believes an elderly client is being financially exploited and is being pressured into large, out-of-character withdrawals. Under the NASAA model act on vulnerable-adult exploitation, the firm is generally permitted to:

C. notify the state Administrator and adult protective services and place a temporary hold on the suspicious disbursement, with good-faith immunity

A. do nothing, since acting on a suspicion would breach client confidentiality

B. freeze the account permanently and cut off all contact with the client

D. lend the client money to offset the suspected losses

Series 66 practice exam · 50 questions · NASAA state law

Series 66 practice exam

A full-length 50-question Series 66 practice exam written to mirror the NASAA Uniform Combined State Law format. Explanations after every question and a per-topic breakdown at the end. CertFuel's full Series 66 app generates fresh practice exams from a 3,000-question adaptive bank, plus FSRS flashcards, lessons, and a live exam-readiness score.

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One practice exam, then the full bank in the app

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This page is a single 50-question Series 66 practice exam, fixed order, with explanations after each question. Useful for a one-off check, a feel for question difficulty, or a focused review session. The real NASAA Series 66 has 100 scored questions plus 10 unscored pretest questions, a 150-minute limit, and a 73% passing score (73 of 100).

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Finish to see your total score and a topic-by-topic breakdown.

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