Series 65 Practice Questions with Answers

🧾 Series 65 Practice Questions with Answers
📘 Sharpen Your Skills with These Sample Questions and Clear Explanations

The Series 65 exam is designed for those who want to work as investment adviser representatives (IARs), and it covers portfolio management, economics, ethics, and regulatory guidelines. Below is a set of 10 sample practice questions—each with the correct answer and a brief explanation—to help you prepare effectively.

🔢 Series 65 Practice Questions

1. Which of the following is considered a non-systematic risk?
A) Market risk
B) Purchasing power risk
C) Business risk
D) Interest rate risk

✅ Answer: C) Business risk
Explanation: Business risk affects a specific company or industry and can be reduced through diversification. Systematic risks, like market or interest rate risk, cannot be diversified away.

2. An investor buys a bond at a discount. Which of the following will be true if the bond is held to maturity?
A) The current yield will be less than the coupon rate
B) The yield to maturity will be greater than the coupon rate
C) The yield to maturity will equal the coupon rate
D) The bond will generate a capital loss

✅ Answer: B) The yield to maturity will be greater than the coupon rate
Explanation: Buying at a discount means the investor earns more than just the coupon—resulting in a YTM higher than the coupon rate.

3. Under the Uniform Securities Act, which of the following individuals is not required to register as an investment adviser representative?
A) A person who prepares comprehensive financial plans
B) A clerk performing administrative tasks
C) A person who gives advice about specific securities
D) A person who is compensated for offering investment strategies

✅ Answer: B) A clerk performing administrative tasks
Explanation: Only individuals engaged in advisory activities must register as IARs. Purely clerical employees are excluded.

4. Which of the following would be considered a derivative instrument?
A) Preferred stock
B) Treasury bond
C) Call option
D) Corporate bond

✅ Answer: C) Call option
Explanation: A call option is a derivative because its value is based on an underlying asset (e.g., a stock).

5. A client wants to reduce interest rate risk on a bond portfolio. What is the most appropriate action?
A) Buy long-term zero-coupon bonds
B) Increase duration
C) Shorten the average maturity
D) Add more corporate bonds

✅ Answer: C) Shorten the average maturity
Explanation: Shorter-term bonds are less sensitive to interest rate changes, reducing interest rate risk.

6. Which of the following entities enforces the Investment Advisers Act of 1940?
A) FINRA
B) NASAA
C) SEC
D) CFTC

✅ Answer: C) SEC
Explanation: The SEC enforces federal regulations under the Investment Advisers Act of 1940.

7. Which risk is most associated with foreign bond investments?
A) Market risk
B) Reinvestment risk
C) Currency risk
D) Liquidity risk

✅ Answer: C) Currency risk
Explanation: Foreign bonds may lose value due to unfavorable exchange rate movements.

8. What is the key distinction between a traditional IRA and a Roth IRA?
A) Roth IRAs allow tax-free contributions
B) Traditional IRAs grow tax-free
C) Roth IRAs offer tax-free qualified withdrawals
D) Traditional IRAs have no required minimum distributions

✅ Answer: C) Roth IRAs offer tax-free qualified withdrawals
Explanation: Roth IRAs are funded with after-tax dollars, and qualified withdrawals are tax-free.

9. Under modern portfolio theory (MPT), what is the optimal portfolio?
A) The one with the highest Sharpe ratio
B) The one that minimizes standard deviation
C) The one that has the most beta
D) The one invested entirely in T-bills

✅ Answer: A) The one with the highest Sharpe ratio
Explanation: MPT seeks the best risk-adjusted return, which is represented by the Sharpe ratio.

10. An investment adviser who takes custody of client funds must do all EXCEPT:
A) File Form ADV promptly
B) Undergo an annual surprise audit
C) Post a bond in all states
D) Notify the administrator in writing

✅ Answer: C) Post a bond in all states
Explanation: Bonding may be required in some states, but not universally. The adviser must notify regulators and be subject to surprise audits.

📊 Scoring

• 9–10 correct: Excellent! You’re near test-ready.
• 7–8 correct: Solid foundation—review the missed areas.
• 5–6 correct: Focus on refining core concepts.
• Below 5: Time to revisit major topics in your study plan.

🎓 Need more Series 65 prep?
Get full-length exams, topic drills, and study guides at:
👉 https://finra-exam-mastery.com

Study smart. Pass with confidence. Become a licensed Investment Adviser Representative!