Series 65 Practice Exam – Portfolio Management

🧾 Series 65 Practice Exam – Portfolio Management
📘 Sharpen Your Understanding of Portfolio Construction, Risk, and Allocation

Portfolio management is a core topic on the Series 65 exam, testing your ability to recommend suitable investments, apply risk metrics, and understand asset allocation. Below is a 10-question practice exam focused specifically on portfolio management. Each question includes answer choices and explanations to help reinforce your knowledge.

🧠 Instructions:

• Suggested time: ~12–15 minutes (90 seconds per question)
• Choose the best answer
• Review the explanations at the end

📊 Series 65 Portfolio Management Questions

1. What is the primary goal of modern portfolio theory (MPT)?

A) Maximize returns regardless of risk
B) Eliminate all risk through diversification
C) Construct an efficient portfolio based on expected return and standard deviation
D) Match the investor’s portfolio to the S&P 500 index

2. An investor has a portfolio with an expected return of 8% and a standard deviation of 10%. What does the standard deviation represent?

A) The guaranteed return range
B) The probability of negative returns
C) The variability of returns from the average
D) The correlation of the portfolio to the market

3. What is the Sharpe Ratio used to measure?

A) A stock’s sensitivity to the market
B) Return per unit of total risk
C) The bond’s yield curve
D) Systematic risk

4. According to the Capital Asset Pricing Model (CAPM), what is the only type of risk that affects a security’s expected return?

A) Standard deviation
B) Alpha
C) Systematic risk (beta)
D) Liquidity risk

5. Which of the following statements best describes beta?

A) It measures the total volatility of a security.
B) It shows the extent to which a security’s price moves relative to its earnings.
C) It measures a security’s sensitivity to movements in the overall market.
D) It predicts future returns based on historical data.

6. A portfolio manager earns 11% on a portfolio when the risk-free rate is 2% and the beta is 1.5. What is the risk premium?

A) 9%
B) 6%
C) 13%
D) 7.5%

7. An investor is retired and concerned primarily with income and preservation of capital. Which asset allocation is most appropriate?

A) 80% equities, 20% bonds
B) 60% equities, 40% international equities
C) 20% equities, 80% bonds
D) 100% small-cap growth stocks

8. Which of the following investments would be most suitable for a client with a high risk tolerance and a long investment time horizon?

A) Treasury bills
B) Money market fund
C) Large-cap index fund
D) Aggressive growth mutual fund

9. What does correlation measure in portfolio theory?

A) The volatility of a single asset
B) The time to maturity of bonds
C) The relationship between the returns of two assets
D) The risk-free rate compared to inflation

10. Which of the following portfolios is considered efficient under MPT?

A) One that minimizes all risk
B) One that maximizes return for a given level of risk
C) One that includes only large-cap stocks
D) One that underperforms the market with low beta

✅ Answer Key + Explanations

1. ✅ C – MPT aims to create efficient portfolios that balance expected return and standard deviation (risk).
2. ✅ C – Standard deviation is a statistical measure of return variability around the mean.
3. ✅ B – Sharpe Ratio = (Portfolio return – Risk-free rate) / Standard deviation (total risk).
4. ✅ C – CAPM suggests only systematic risk (beta) is rewarded with higher expected return.
5. ✅ C – Beta measures a security’s market risk exposure, not total volatility.
6. ✅ A – Risk premium = 11% – 2% = 9%. It represents return above the risk-free rate.
7. ✅ C – A conservative allocation (20% equities, 80% bonds) is suitable for income-focused, low-risk investors.
8. ✅ D – Aggressive growth funds suit long time horizons and high risk tolerance.
9. ✅ C – Correlation indicates how two investments move in relation to each other (diversification benefit).
10. ✅ B – An efficient portfolio under MPT maximizes return for a given level of risk.

📈 How Did You Do?

• 9–10 correct: Excellent – ready for advanced simulations.
• 7–8 correct: Solid – review any missed metrics like beta or Sharpe.
• 5–6 correct: Revisit CAPM, allocation principles, and risk tools.
• Below 5: Focus on MPT basics, risk-return concepts, and core formulas.

🎓 Need more Series 65 practice modules?
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Practice builds confidence. Consistency builds passing scores. Let’s get you licensed!