Series 65 Practice Questions (2026) — Free Sample Questions with Answers

Answer: D

1. Mean = (9 − 3 + 12 + 9 + 3 + 6) ÷ 6 = 36 ÷ 6 = 6%.
2. Sort: −3, 3, 6, 9, 9, 12. Even count, so median = (6 + 9) ÷ 2 = 7.5%.
3. Mode = most frequent value = 9%.
4. Mean (6%) < median (7.5%) < mode (9%); the −3% year pulls the mean down (negative skew).

The mean is greater than the median, which is greater than the mode: Reversed: the mean (6%) is the smallest of the three and the mode (9%) the largest.

The mean equals the median, and both are below the mode: Takes the median as 6%; with an even number of values the median is the average of the two middle values (6% and 9%), or 7.5%.

The median is below the mean, which is below the mode: The median (7.5%) is above the mean (6%), not below it.

The mean is below the median, which is below the mode: Correct — mean = 36% ÷ 6 = 6%; sorted (−3, 3, 6, 9, 9, 12), the median is (6 + 9) ÷ 2 = 7.5%; the mode is 9%, the only repeated value.

For an even number of observations, the median is the average of the two middle values; a low outlier drags the mean below the median.

Answer: A

Cash and current liabilities both decrease; shareholders' equity is unchanged: Correct — retained earnings fell on the declaration date, when dividends payable (a current liability) was recorded; paying the dividend simply settles that liability with cash.

Cash and retained earnings both decrease by the amount of the dividend: That is the combined effect of declaration and payment; retained earnings already fell on November 15.

Retained earnings decreases and dividends payable increases: That is the entry made on the declaration date, not the payment date.

Cash decreases, so working capital falls by the amount of the dividend: Current assets and current liabilities fall by the same amount, so working capital is unchanged.

Declaration moves the dividend from retained earnings to a current liability; payment reduces cash and that liability, leaving equity and working capital unchanged.

Answer: D

A fixed deferred annuity: Tax deferral fits, but a fixed annuity credits a guaranteed rate and gives no stock market exposure.

A fixed indexed annuity: An indexed annuity links credits to an index but caps the upside and protects against losses; she accepts market risk and wants full equity exposure.

A single premium immediate annuity: An immediate annuity starts income right away, but she will not need income for at least 10 years.

A deferred variable annuity: Correct — a deferred variable annuity offers tax-deferred growth in equity subaccounts, with the investor bearing market risk, plus a standard death benefit for beneficiaries.

A deferred variable annuity combines tax deferral, market exposure through subaccounts and a death benefit, and suits those who have already maxed out qualified plans.

Answer: C

1. ETF daily returns = 2 × index: +8%, −8%, +8%.
2. Growth factor = 1.08 × 0.92 × 1.08 = 0.9936 × 1.08 = 1.0731.
3. ETF return ≈ +7.31%.
4. Index: 1.04 × 0.96 × 1.04 = 1.0383 (+3.83%); 2 × 3.83% = 7.67%, so volatility drag cost the ETF about 0.36 percentage points.

+3.83%: That is the index's own compounded return (1.04 × 0.96 × 1.04 − 1), with no leverage applied.

+4.00%: Adds the index's daily returns without compounding or leverage.

+7.31%: Correct — the ETF returns 2× each day: 1.08 × 0.92 × 1.08 = 1.0731, or about +7.31%.

+7.67%: Doubles the index's three-day return (2 × 3.83%); daily resetting means a leveraged ETF does not deliver 2× the multi-day return.

Leveraged ETFs hit their multiple only for one day; over longer periods, compounding in volatile markets makes results diverge from the multiple of the index return.

Answer: D

Class C, because all $150,000 goes to work immediately with no front-end charge: Avoiding the up-front charge is outweighed by the 1.00% annual 12b-1 fee, which over 20 years costs far more.

Class C, because its sales charge disappears entirely after the first year: Only the deferred charge ends; the 1.00% annual 12b-1 fee continues for as long as he holds the shares.

Class A, because front-end charges cost less than 12b-1 fees over any period: Class A is right here, but not for that reason: over short holding periods Class C can be cheaper.

Class A, since $150,000 gets the 3.50% breakpoint and a lower 12b-1 fee: Correct — at $150,000 he pays 3.50% once and 0.25% a year, versus 1.00% a year in Class C; over 20 years Class A is clearly cheaper.

Large purchases held for many years usually favor Class A shares (breakpoints, low 12b-1 fees); Class C suits short holding periods.

Answer: A

1. Annual coupon = 6% × $1,000 = $60; price = 104% × $1,000 = $1,040.
2. Current yield = $60 ÷ $1,040 = 5.77%.
3. Approximate YTM = [$60 − ($40 ÷ 10)] ÷ [($1,040 + $1,000) ÷ 2] = $56 ÷ $1,020 ≈ 5.49%.
4. Premium bond: coupon 6.00% > current yield 5.77% > YTM ≈ 5.49%.

It is below the current yield of about 5.77%: Correct — current yield = $60 ÷ $1,040 = 5.77%; because the $40 premium is lost by maturity, YTM is lower still (about 5.5%). For a premium bond: coupon > current yield > YTM.

It equals the bond's current yield of about 5.77%: Current yield ignores the loss of the premium at maturity; YTM includes it and is therefore lower.

It falls between 5.77% and the 6.00% coupon rate: That ordering would put YTM above current yield, which happens only for a discount bond.

It is above the bond's 6.00% coupon rate: YTM exceeds the coupon only when a bond trades at a discount to par.

For a bond bought at a premium, nominal yield > current yield > yield to maturity; the order reverses for a discount bond.

Answer: B

Register her accounts transfer on death to her son: TOD avoids probate, but it gives no one authority to manage the assets during incapacity and pays her son in one lump sum.

A funded revocable trust naming a successor trustee: Correct — assets titled to the trust avoid probate, the successor trustee can manage them if she is incapacitated, and the trust terms can pay her son over time.

A testamentary trust created under her will for her son: It can control payments to her son, but it takes effect only at death through probate and does nothing during incapacity.

Joint tenancy with right of survivorship between her and her son: Avoids probate but gives her son current ownership, exposes the assets to his creditors and ends her control of the timing.

A funded revocable living trust is the one tool that avoids probate, provides management during incapacity and controls the timing of distributions after death.

Answer: D

I and II: Includes II: the employer's deduction is deferred until the executive includes the compensation in income, not when it is credited.

II and IV: Includes the false statement II and omits I and III, two defining features of a nonqualified plan.

I, II and III: Includes II and omits IV; the deduction timing is the mismatch, while the executives' tax deferral is accurate.

I, III and IV: Correct — nonqualified plans may be selective (I), the promise is unfunded and exposed to general creditors (III), and executives are taxed when paid (IV); the company deducts only when the executive is taxed, so II is false.

Nonqualified plans trade the qualified-plan rules (nondiscrimination, ERISA funding, current employer deduction) for flexibility; the executive bears the employer's credit risk.

Answer: D

1. TWR links each period's return regardless of cash flows: 1.20 × 0.90 = 1.08, or +8% for two years.
2. Her deposits: $100,000 + $100,000 = $200,000. Ending value: $198,000.
3. She lost money in dollar terms, so her DWR (an IRR on her cash flows) is negative.
4. DWR < TWR because more money was invested in the −10% year.

Both measures equal +8%, because the fund earned the same returns for every investor: The TWR is +8%, but the DWR reflects the size and timing of her deposit, so it differs.

Her DWR exceeds the TWR, because her deposit increased the amount invested: Reversed: the larger amount was invested during the losing year, which pulls the DWR down.

The TWR is negative, because her account ended with less than she deposited: That describes her dollar result; the TWR removes the effect of cash flows and is +8%.

The TWR is +8%, and her DWR is lower because more money was in the losing year: Correct — TWR = 1.20 × 0.90 − 1 = +8%; she deposited $200,000 in total and ended with $198,000, so her DWR is negative, below the TWR.

TWR measures the manager (it ignores client cash flows); DWR measures the investor's experience and is affected by the timing of deposits and withdrawals.

Answer: C

Both have the same expected return, because their total risk is the same: CAPM prices beta (systematic risk), not total risk measured by standard deviation.

Kestrel has the higher expected return, because more of its risk is diversifiable: Diversifiable (unsystematic) risk earns no premium under CAPM, because investors can eliminate it at no cost.

Larchmont has the higher expected return, since only systematic risk is priced: Correct — with equal total risk, Larchmont carries more market (beta) risk, and CAPM rewards only systematic risk with a higher expected return.

Their expected returns cannot be ranked without knowing each stock's alpha: CAPM expected return depends only on the risk-free rate, beta and the market premium; alpha measures performance against that expectation.

Under CAPM, investors are compensated only for systematic risk (beta); unsystematic risk can be diversified away and earns no premium.

Answer: D

Stop his 401(k) deferrals and put every spare dollar on the card until it is paid: Attacking the 24% debt is right, but stopping deferrals forfeits the employer match, an immediate 100% return that beats even a 24% payoff.

Open a Roth IRA and contribute the 2026 maximum of $7,500: A Roth IRA is a good tool later, but its expected return cannot beat paying off 24% debt, and it skips the free match.

Raise his 401(k) deferrals to the 2026 maximum of $24,500: Deferring the maximum before eliminating 24% debt misorders his priorities: beyond the match, paying off the card is a guaranteed 24% return.

Capture the full match and send other savings to the 24% card debt: Correct — his six-month reserve is already in place, so the next dollars go first to the match (an immediate 100% return on the extra 2% of pay) and then to the 24% balance, a guaranteed 24% return; both beat any investment he could choose.

With reserves in place, order the basics: claim free employer money, retire high-interest debt, then add further tax-advantaged savings.

Answer: C

None, because deducting fees from client accounts does not give an adviser custody: Authority to deduct fees from client accounts is custody; the rule then sets specific safeguards.

Keeping a $35,000 net worth and arranging an annual surprise audit: Overstates the obligations: an adviser with custody solely through fee deduction that follows the safeguards need not meet these requirements.

Sending the client an itemized invoice each time it has a fee deducted: Correct — NASAA Model Rule 102(e)(1)-1: with written client authorization, the adviser must send the custodian notice of each fee and, at the same time, send the client an invoice showing the fee, the formula, the period and the asset value used.

Getting the client's oral approval before each quarterly deduction: The rule calls for written authorization from the client, not oral approval each quarter.

Direct fee deduction is custody: get written authorization, notify the custodian and send the client an itemized invoice at the same time.

Answer: B

It is an assignment of every contract, so each client must consent to it in writing: Admitting a partner who holds only a minority interest, with no change in control, is not an assignment.

Not an assignment, but clients must be notified within a reasonable time: Correct — USA §102(b): a transaction that does not change actual control or management is not an assignment, but a partnership adviser must notify clients of a change in its membership within a reasonable time.

It is not an assignment, and the firm has no duty to tell clients: Partnership advisers must notify clients of changes in membership even when no assignment occurs.

It is an assignment, but client consent may be presumed if no one objects: There is no assignment here, and where one does occur, negative consent is the wrong standard under the Act.

A minority partnership change is not an assignment, but clients must be told of the change in membership within a reasonable time.

Answer: D

It is valid, because states may regulate any broker-dealer doing business there: States still register broker-dealers, but NSMIA removed their power over recordkeeping and financial requirements.

It is valid, but only for broker-dealers whose principal office is in State B: The preemption protects every broker-dealer, whatever its home state.

It is valid if the Administrator first holds a public hearing on it: A hearing does not restore authority that federal law has preempted.

It is preempted, because states may not add to SEC broker-dealer record rules: Correct — Securities Exchange Act §15(i), added by NSMIA, bars states from imposing broker-dealer net capital, custody, margin, financial responsibility or books-and-records requirements that differ from or add to the SEC's.

States keep registration, notice and antifraud powers over broker-dealers, but capital, margin and books-and-records rules are set federally.

Answer: D

It need not register in State B, because it has fewer than six clients there: Applies only half of the de minimis test: the exemption also requires that the adviser have no place of business in the state.

Only the representative must register in State B; the firm remains exempt: Once the firm has a place of business in State B, the de minimis exemption is lost for the firm itself.

It must register in State B only after it takes on a sixth State B client: The client count matters only when there is no place of business; the home office already ends the exemption.

It must register in State B now, because it has a place of business there: Correct — IAA §222(d) bars state registration only if the adviser has no place of business in the state and fewer than six resident clients in 12 months; an office held out as a place where the IAR gives advice is a place of business (Rule 222-1).

National de minimis needs both conditions: no place of business in the state and fewer than six resident clients in the preceding 12 months.