Free NASAA Series 66 (Uniform Combined State Law Examination) Client/Customer Investment Recommendations and Strategies Practice Questions
Client investment recommendations and strategies on the NASAA Series 66 exam cover asset allocation, portfolio construction, modern portfolio theory, tax planning, retirement planning, estate planning, and suitability analysis.
Sample Questions
Question 1
Easy
All of the following are accurate statements about Roth IRAs EXCEPT:
Solution
A is correct. Roth IRA contributions are made with after-tax dollars and are NOT deductible, so the claim of a deduction in the year made is the false statement. Qualified distributions of earnings come out federal-income-tax-free, the original owner has no lifetime required minimum distributions, and contributions are funded with after-tax dollars.
Question 2
Medium
An adviser explains stock order mechanics to a client. All of the following statements are accurate EXCEPT:
Solution
D is correct. A buy stop order is placed above the current market price; it is used to enter a long position on upside momentum or to cap a loss on a short sale, and it activates when the stock trades at or above the stop. Placing it below the market is incorrect, making it the exception. The other statements correctly describe a buy limit (entered below the market, filled at the limit or a better price), a sell stop (activated at or below the stop), and a market order (filled promptly at the best available price).
Question 3
Hard
All of the following are accurate statements about Modern Portfolio Theory and the Capital Asset Pricing Model EXCEPT:
Solution
C is correct because it is the false statement (the exception). Diversification reduces unsystematic (firm-specific) risk, but systematic (market) risk cannot be diversified away no matter how many securities are added. That is precisely why CAPM prices a security on its systematic risk, measured by beta, rather than its total risk. The other statements correctly describe MPT and CAPM: imperfectly correlated assets produce a diversification benefit that lowers portfolio standard deviation, and the efficient frontier identifies the maximum expected return available for each level of risk.