Free NASAA Series 65 (Uniform Investment Adviser Law Examination) Economic Factors and Business Information Practice Questions

Choice C is correct because current yield equals the annual coupon payment divided by the bond's current market price. It measures income return relative to the price paid today, without accounting for any gain or loss at maturity.
Choice A is incorrect because that describes yield to maturity (YTM), which is the internal rate of return assuming all cash flows are reinvested at the same rate.
Choice D is incorrect because that describes the coupon rate (nominal yield), which is fixed at issuance based on par value.
Choice B is incorrect because that describes a credit-adjusted or default-adjusted yield concept, not the standard current yield calculation.

Choice A is correct because systematic risk (also called market risk) affects the broad market and all securities to varying degrees; it cannot be eliminated through portfolio diversification.
Choice C is incorrect because the risk that can be eliminated through diversification is unsystematic (company-specific) risk, not systematic risk.
Choice B is incorrect because risk specific to a single company's management decisions is an example of unsystematic (business) risk.
Choice D is incorrect because the risk of a company failing to meet debt obligations is credit/default risk, a form of unsystematic risk.

Choice B is incorrect because tax increases reduce consumer spending and typically slow inflation rather than accelerate it. Additionally, fiscal policy decisions are not tied to automatic triggers at specific business cycle phases.
Choice C is correct because during expansions, employment rises, wages increase, and consumers spend more. When aggregate demand for goods and services grows faster than productive capacity can supply them, demand-pull inflation results — the classic inflationary mechanism during economic booms.
Choice A is incorrect because businesses generally expand production capacity during growth phases, not reduce it. Capacity reduction would be more consistent with contraction.
Choice D is incorrect because reserve requirements are rarely changed as a monetary policy tool in modern practice, and the Fed does not automatically raise them during expansions. The Fed more commonly raises the Fed Funds rate target to combat expansion-phase inflation.