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

The bond may default at maturity

Answer

The bond's price will rise sharply when called

Answer

The bondholder loses all accrued interest when the bond is called

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

High volatility and potential for significant capital gains

Answer

Primarily invests in small-cap equities

Answer

Provides long-term capital appreciation with moderate risk

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 pay higher dividends; value stocks reinvest all earnings

Answer

Growth stocks are only found in international markets; value stocks are domestic

Answer

Growth stocks have lower P/E ratios than value stocks

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

The bond's coupon rate is below the current market interest rate

Answer

The bond has a higher credit rating than average

Answer

The bond matures sooner than expected

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

To provide guaranteed returns with no risk

Answer

To replicate the performance of a broad market index

Answer

To provide tax-free income to qualified investors

Question 6

Which of the following best describes a variable annuity?

Accepted Answer

An insurance product with an investment component where the value varies based on the performance of subaccounts

Answer

A fixed insurance contract with guaranteed returns

Answer

A government bond with adjustable coupon payments

Answer

A savings account with variable interest rates