Free NASAA Series 65 (Uniform Investment Adviser Law Examination) Client Investment Recommendations and Strategies Practice Questions

Choice B is correct because as of May 2024, the SEC shortened the standard settlement cycle for most securities transactions to T+1, meaning one business day after the trade date. This replaced the prior T+2 cycle to reduce counterparty risk and improve market efficiency.
Choice A is incorrect because T+2 was the settlement standard from September 2017 through May 2024. The SEC adopted T+1 to reduce the window of credit and market risk between trade execution and final settlement.
Choice C is incorrect because T+3 was the settlement standard prior to September 2017. The industry has moved to progressively shorter settlement cycles over time.
Choice D is incorrect because same-day settlement is not the current standard for most equity trades, though certain transactions such as government securities and some options settle on different cycles.

Choice B is correct because the wash sale rule (IRC §1091) disallows a capital loss deduction when the taxpayer repurchases the same or substantially identical security within the 61-day window (30 days before the sale through 30 days after the sale). The disallowed loss is added to the basis of the replacement shares.
Choice A is incorrect because there is no provision that requires reinvestment of sale proceeds within 60 days to defer a gain. That concept applies to like-kind exchanges in real estate under §1031, not securities.
Choice C is incorrect because the wash sale rule applies to losses, not to gains, and the trigger is buying substantially identical securities — not solely the holding period.
Choice D is incorrect because that describes the distribution requirement for regulated investment companies (RICs) under the Internal Revenue Code, which is unrelated to the wash sale rule.

Choice D is correct because the Security Market Line (SML) plots expected return against beta (systematic risk). A security that falls below the SML has an actual or expected return that is less than the CAPM-predicted return for its level of beta. This means it is overpriced — investors are not being adequately compensated for the systematic risk they are bearing.
Choice A is incorrect because a security offering a return above what its systematic risk warrants would plot above the SML, not below it. That would indicate an underpriced security with positive alpha.
Choice B is incorrect because a fairly priced security would plot directly on the SML, where its return exactly matches the CAPM-expected return for its beta.
Choice C is incorrect because a risk-free asset has a beta of zero and plots at the y-intercept, which is a specific point on the SML. A security below the SML has a positive beta and is earning less than expected.