Series 65 – Uniform Investment Adviser Law Exam Investment Vehicle Characteristics 3

Question 1

What is a convertible bond?

Accepted Answer

A bond that can be exchanged for a fixed number of shares of the issuer's common stock

Answer

Convertible bonds give the bondholder the right to convert the bond into a predetermined number of common shares, offering upside participation if the stock rises.

Question 2

What is duration in the context of fixed income securities?

Accepted Answer

A measure of a bond's price sensitivity to interest rate changes

Answer

Duration measures the weighted average time to receive a bond's cash flows and is used to estimate how much a bond's price will change when interest rates move.

Question 3

Which type of mutual fund charges a fee when shares are purchased?

Accepted Answer

Front-end load fund

Answer

A front-end load fund charges a sales commission at the time of purchase, reducing the amount of money actually invested.

Question 4

What is a closed-end fund?

Accepted Answer

An investment company that issues a fixed number of shares that trade on an exchange at market prices

Answer

Closed-end funds issue a fixed number of shares through an IPO and trade on exchanges like stocks, with prices determined by market supply and demand rather than NAV.

Question 5

What distinguishes an accredited investor under U.S. securities laws?

Accepted Answer

An individual with income exceeding $200,000 annually or net worth over $1 million excluding primary residence

Answer

Under SEC rules, an accredited investor must meet income ($200,000 individual or $300,000 joint) or net worth thresholds ($1 million excluding primary residence), allowing access to certain private offerings.

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 3