Series 65 – Uniform Investment Adviser Law Exam Investment Vehicle Characteristics 2

Question 1

What is the main risk associated with a callable bond from an investor's perspective?

Accepted Answer

The issuer may call the bond when interest rates fall, forcing reinvestment at lower rates

Answer

Callable bonds expose investors to reinvestment risk because issuers typically call bonds when rates fall, forcing investors to reinvest proceeds at lower prevailing rates.

Question 2

Which of the following is a characteristic of a money market fund?

Accepted Answer

Typically maintains a stable $1.00 net asset value and invests in short-term, high-quality instruments

Answer

Money market funds aim to maintain a constant $1.00 NAV by investing in short-term, highly liquid, high-quality instruments such as Treasury bills and commercial paper.

Question 3

What is the difference between a growth stock and a value stock?

Accepted Answer

Growth stocks are expected to grow faster than the market; value stocks trade below their perceived intrinsic value

Answer

Growth stocks are shares in companies expected to grow earnings faster than the market average, while value stocks trade at prices considered below their fundamental worth.

Question 4

What does it mean when a bond is trading at a premium?

Accepted Answer

The bond's market price is above its face (par) value

Answer

A bond trades at a premium when its market price exceeds its face value, typically because its coupon rate is higher than current market interest rates.

Question 5

What is the primary purpose of a hedge fund?

Accepted Answer

To use diverse and often complex strategies to generate absolute returns regardless of market conditions

Answer

Hedge funds use a wide range of strategies including leverage, short selling, and derivatives to seek absolute returns that are not necessarily correlated with market performance.

Series 65 – Uniform Investment Adviser Law Exam Practice Test

Series 65 – Uniform Investment Adviser Law Exam Practice Test

Series 65 – Uniform Investment Adviser Law Exam Investment Vehicle Characteristics 2