Series 66 Practice Questions (2026) — Free Sample Questions with Answers

Answer: D

1. Sharpe = (Rp − Rf) ÷ σp
2. W: (8 − 3) ÷ 6 = 0.83; X: (14 − 3) ÷ 18 = 0.61
3. Y: (10 − 3) ÷ 9 = 0.78; Z: (12 − 3) ÷ 10 = 0.90
4. Fund Z has the highest Sharpe ratio. Beta is not used because the question asks about total risk

Fund W: Fund W has the lowest volatility, but (8 − 3) ÷ 6 = 0.83, below Fund Z's 0.90.

Fund X: Fund X has the highest raw return, but (14 − 3) ÷ 18 = 0.61, the lowest risk-adjusted result.

Fund Y: Fund Y has the best Treynor ratio, (10 − 3) ÷ 0.5 = 14, but Treynor uses beta (systematic risk). Its Sharpe ratio is (10 − 3) ÷ 9 = 0.78.

Fund Z: Correct — Fund Z's Sharpe ratio is (12 − 3) ÷ 10 = 0.90, the highest of the four, so it earned the most excess return per unit of total risk (standard deviation).

Sharpe = (Rp − Rf) ÷ σp measures excess return per unit of total risk. Treynor divides by beta instead and measures systematic risk only.

Answer: D

The fund's expense ratio, which is higher than that of an ordinary index fund: Leveraged ETFs do charge more, but an expense ratio of about 1% a year cannot explain a 9% loss over six months.

Tracking error from the fund's use of swaps and futures instead of stocks: Derivatives are how the fund delivers its daily 2x target, and it generally meets that daily target. The loss comes from compounding, not from failing the daily objective.

Margin interest charged to her account for the fund's leverage: The investor does not pay margin interest. The fund's financing costs are built into its expenses.

Daily rebalancing, which compounds returns so that volatility erodes value: Correct — The fund resets its leverage every day, so returns over longer periods are compounded daily returns. In a volatile, flat market, that compounding erodes value, which is why these funds suit short-term trading, not buy-and-hold.

Leveraged and inverse ETFs target a multiple of the index's daily return. Held longer, daily compounding means results can depart sharply from the multiple, especially in volatile markets.

Answer: D

1. Value = D₁ ÷ (r − g)
2. D₁ = $2.00 × 1.05 = $2.10
3. r − g = 10% − 5% = 5%
4. $2.10 ÷ 0.05 = $42.00, the intrinsic value at a 10% required return

$14.00: This adds the growth rate to the required return ($2.10 ÷ 0.15). The model subtracts growth: r − g.

$20.00: This ignores growth and capitalizes the current dividend ($2.00 ÷ 0.10).

$40.00: This uses the dividend just paid ($2.00 ÷ 0.05). The model needs next year's dividend, D₁.

$42.00: Correct — D₁ = $2.00 × 1.05 = $2.10, and value = $2.10 ÷ (0.10 − 0.05) = $42.00.

Gordon (constant-growth) model: value = next year's dividend ÷ (required return − growth rate).

Answer: B

All $36 per share is long-term capital gain because the options were held over two years: ISO treatment needs both holding periods: 2 years from grant and 1 year from exercise. She sold only 8 months after exercising.

The $30 spread is ordinary income and the $6 is short-term capital gain: Correct — Selling within 1 year of exercise is a disqualifying disposition. The $30 spread at exercise becomes ordinary income. The $6 gained after exercise is a capital gain, short-term because she held the shares less than a year.

The $30 spread is ordinary income and the $6 is long-term capital gain: The $30 ordinary-income piece is right, but the shares were held only 8 months after exercise, so the remaining $6 is short-term.

The $30 spread is long-term capital gain and the $6 is short-term capital gain: The spread on a disqualifying disposition is ordinary income, never long-term capital gain.

ISOs get long-term capital gain treatment only if the shares are held 2 years from grant and 1 year from exercise. Otherwise the spread at exercise is ordinary income.

Answer: A

1. Annual coupon = 5% × $1,000 = $50
2. Current yield = $50 ÷ $800 = 6.25%
3. Discount bond ordering: nominal 5% < current yield 6.25% < YTM
4. Approximate YTM = ($50 + $200 ÷ 10) ÷ (($800 + $1,000) ÷ 2) = $70 ÷ $900 ≈ 7.8%

Current yield 6.25%; yield to maturity above 6.25%: Correct — Current yield = $50 ÷ $800 = 6.25%. Because the bond also gains $200 by maturity, its YTM is higher still (roughly 7.8%).

Current yield 6.25%; yield to maturity below 6.25%: The current yield is right, but the order is reversed: for a discount bond, YTM exceeds current yield because the discount accretes to par.

Current yield 5.00%; yield to maturity above 5.00%: 5% is the nominal (coupon) yield. Current yield divides the coupon by the market price, not by par.

Current yield 4.00%; yield to maturity 5.00%: This multiplies the coupon rate by the price ($40) instead of dividing the $50 coupon by the price, and YTM equals the coupon only for a bond at par.

For a discount bond: nominal yield < current yield < YTM < YTC. For a premium bond the order reverses.

Answer: D

Both accounts allow penalty-free withdrawals because he has separated from service: Separation from service is not an exception for IRAs. Early IRA withdrawals face the 10% additional tax unless a specific exception applies.

Neither account allows penalty-free withdrawals before age 59½: Governmental 457(b) distributions are not subject to the 10% additional tax at any age after separation.

The IRA allows penalty-free withdrawals, but the 457(b) does not until age 55: This reverses the rules. The age-55 separation exception applies to qualified employer plans, and 457(b) plans need no exception.

The 457(b) withdrawals escape the 10% additional tax; early IRA withdrawals do not: Correct — Distributions from a governmental 457(b) are taxed as ordinary income but are not subject to the 10% additional tax. IRA withdrawals before 59½ generally are, unless an exception applies.

Governmental 457(b) plans have no 10% early-withdrawal tax after separation. That makes them valuable for early retirees, unlike IRAs.

Answer: A

1. Gain basis = donor's basis = $20; sale at $18 → no gain
2. Loss basis = lower of donor's basis or FMV at gift = $15; sale at $18 → no loss
3. A sale price between $15 and $20 → no gain or loss

No gain or loss: Correct — For a gain, his basis is the donor's $20, and $18 is no gain. For a loss, his basis is the lower $15 market value at the gift, and $18 is no loss. A sale between the two values produces neither.

A $3 gain: This uses the $15 value at the gift as the basis for a gain. The basis for a gain is the donor's $20 cost.

A $2 loss: This uses the donor's $20 cost to measure a loss. When the value at the gift is below the donor's basis, the loss basis is that lower value ($15).

A $5 loss carried over from the aunt: The donor's unrealized loss does not pass to the recipient. A loss is measured from the $15 value at the gift.

Gifted shares carry over the donor's basis. If they were worth less than that basis at the gift, losses are measured from that lower value, and a sale between the two values produces no gain or loss.

Answer: C

1. Net short-term: +$5,000 (Stock A, held under 1 year)
2. Net long-term: −$12,000 + $2,000 = −$10,000
3. Overall net: +$5,000 − $10,000 = −$5,000 net long-term capital loss
4. Deduct $3,000 against ordinary income; carry forward $2,000 of long-term loss to future years

He deducts the $10,000 net long-term loss against ordinary income this year: This leaves out the short-term gain in the netting and ignores the $3,000 annual limit on deducting net capital losses.

He reports a $5,000 short-term gain and deducts $3,000 of the long-term loss: Short-term and long-term results are netted against each other before any loss is deducted. The $5,000 gain is absorbed by the long-term loss.

He deducts $3,000 against ordinary income and carries forward $2,000 of long-term capital loss: Correct — Net long-term is −$10,000 (−$12,000 + $2,000). Against the $5,000 short-term gain, that leaves a $5,000 net long-term loss. He deducts $3,000 against ordinary income and carries forward the other $2,000.

He deducts the full $5,000 net loss against ordinary income with nothing carried forward: The netting is right, but only $3,000 of net capital loss may be deducted against ordinary income in one year.

Net short-term and long-term results within each category, then against each other. Up to $3,000 of net capital loss offsets ordinary income each year, and the rest carries forward with its character.

Answer: B

Recommend a ladder of Treasuries and CDs, since she has asked for safety and income: This may end up being suitable, but recommending it now skips the fact-finding a recommendation must rest on.

Gather her income needs, other assets, tax situation, horizon and goals: Correct — A suitable recommendation requires knowing the client first: her income needs, other assets, tax situation, horizon, risk tolerance and goals. Fact-finding comes before any product or account decision.

Have her sign an advisory contract and a grant of discretionary authority: Paperwork and discretion are not the first step. They do not tell the IAR what she needs, and discretion is not required to serve her.

Advise her to treat the IRA as her own before choosing any investments: Whether to treat the IRA as her own or keep it as an inherited IRA depends on facts the IAR has not yet gathered.

Before recommending products or account decisions, gather the client's financial and nonfinancial information. Suitability rests on a complete profile.

Answer: A

10 business days after the first discretionary trade: Correct — NASAA Model Rule 102(a)(4)-1: an adviser may trade on oral discretionary authority but must obtain written authority within 10 business days after the first such transaction. In a brokerage account, by contrast, she would need written authority before any discretionary trade.

15 business days after the first discretionary trade: Borrows the 15-business-day hold period from the NASAA senior investor model act.

30 days after the first discretionary trade: A 30-day period appears elsewhere in the Act (registration timing, rescission offers), not here.

90 days after the first discretionary trade: Borrows the 90-day annual Form ADV amendment deadline.

Advisory accounts: oral discretion is allowed, with written authority within 10 business days of the first trade. Brokerage accounts: written authority comes first.

Answer: D

may not use the word, because agents may never call a security guaranteed: The prohibition is on representing a security as guaranteed when it is not, or guaranteeing a customer against loss; an accurate description of a real guarantee is allowed.

may use the word only if the guarantor is the U.S. government or a federal agency: Any person other than the issuer may guarantee a security; the guarantor need not be the government.

may use the word without more, because the parent company is highly rated: Calling the bond guaranteed without naming the guarantor or explaining what is covered risks implying that the investment cannot lose value.

may use it if true, naming the guarantor and not implying price protection: Correct — USA §401(e): "guaranteed" means guaranteed as to payment of principal, interest or dividends. The bond really is guaranteed by Sorvino Holdings, so Rios may say so if he identifies the guarantor; the guarantee covers payments, not market price, and he must not suggest otherwise.

"Guaranteed" refers to a third party's promise to pay principal, interest or dividends; it can be used only when true, and never as a promise against loss.

Answer: A

States B and C: Correct — USA §414(c): an offer is made in a state when it originates from that state or is directed to and received in that state. The call originates in State B and is directed to and received at her winter home in State C. Her residence in State A, where she did not receive it, does not matter.

State A only: Jurisdiction over an offer turns on where it originates and where it is directed and received, not where the offeree lives.

States A, B and C: Adds State A, where the offer was neither made from nor received.

State B only: Leaves out State C, where the offer was directed and received.

An offer is made both where it originates and where it is directed and received.

Answer: A

an exempt isolated nonissuer transaction, though antifraud rules apply: Correct — USA §402(b)(1): any isolated nonissuer transaction, whether or not effected through a broker-dealer, is exempt from registration. Exemptions never reach the antifraud provisions, so Wynne may not misstate or omit material facts.

unlawful, because the shares were never registered in this or any other state: Registration is unnecessary when a transaction exemption applies.

exempt only if the neighbor qualifies as an accredited investor: The isolated nonissuer exemption has no investor-qualification condition.

exempt only if a registered broker-dealer handles the trade: The exemption applies whether or not a broker-dealer is involved.

A one-off sale by a holder who is not the issuer is an exempt transaction; antifraud rules still apply.

Answer: D

they may accept the order, because unsolicited trades are exempt transactions: The unsolicited-order exemption frees the transaction from securities registration, not the firm and agent from their own registration.

they may accept the order, because exchange-listed shares are federal covered securities: Federal covered status removes the security's state registration, not the persons'.

only Nash must register in State C, because Ortega is registered where he works: An agent must be registered in each state where he transacts business, not only where he works.

both Nash and Ortega must be registered in State C before accepting the order: Correct — USA §201(a): it is unlawful to transact business in a state as a broker-dealer or agent unless registered there. Nash does not fit the broker-dealer exclusion, because its customer is a retail investor, and the exemptions for unsolicited orders and listed securities apply to the securities, not to the persons.

Exempt securities and exempt transactions relieve the security from registration; the broker-dealer and agent must still be registered in the customer's state.

Answer: B

is an agent, because her pay is tied to the amount she sells: The no-commission condition belongs to the exclusion for sales to an issuer's existing employees, not to the exclusion for exempt transactions.

is not an agent, since she effects only exempt transactions: Correct — USA §401(b): an individual who represents an issuer in effecting transactions exempted by §402(b) is not an agent. Sales to insurance companies, pension funds and similar institutional buyers are exempt under §402(b)(8), and that exclusion carries no compensation condition.

is an agent unless Tellmark registers the notes in State A: Registering the notes would not help her; the exclusion rests on the exempt transactions, and in a registered public offering she would be an agent.

is not an agent only if Tellmark registers as a broker-dealer: An issuer is excluded from the broker-dealer definition; her status depends on the transactions she effects.

An issuer's representative is excluded from the agent definition when effecting exempt transactions, such as sales to institutions, whatever her compensation.

Answer: A

State A, where her only place of business is: Correct — under NSMIA and the USA as amended, a state may require an IAR of a federal covered adviser to register only if the IAR has a place of business in that state. Vance's only place of business is in State A.

States A and C, where she has clients: Clients in State C do not create a registration requirement for an IAR of a federal covered adviser who has no place of business there.

State B, where Ridley's principal office is located: The firm's home office does not decide where its IARs register; each IAR's own place of business does.

no state, because Ridley is a federal covered adviser: Federal covered status preempts state registration of the firm, not of its IARs who have a place of business in a state.

An IAR of a federal covered adviser registers in each state where the IAR has a place of business, and nowhere else.