Free NASAA Series 66 (Uniform Combined State Law Examination) Investment Vehicle Characteristics Practice Questions
Investment vehicle characteristics on the NASAA Series 66 exam cover stocks, bonds, mutual funds, ETFs, options, annuities, alternative investments, and insurance products, including their risk, return, and tax treatment.
Sample Questions
Question 1
Easy
An American Depositary Receipt (ADR) is best described as:
Solution
D is correct. An ADR is a negotiable certificate issued by a U.S. depositary bank that represents a specified number of shares in a foreign company. The underlying shares are held on deposit with a custodian in the company's home market, and the ADR itself trades in U.S. dollars on U.S. exchanges or OTC. ADRs give U.S. investors access to foreign equity ownership without the need to transact in a foreign currency or on a foreign exchange.
Question 2
Medium
All of the following statements about listed options are accurate EXCEPT:
Solution
B is correct. The writer (seller) of an option does not hold the right to exercise; the writer takes on the obligation to perform if the holder exercises. The right to exercise belongs to the buyer. The other statements are accurate: a put holder may sell the underlying at the strike, listed options are standardized exchange-traded contracts, and a covered call writer owns the shares that back the short call.
Question 3
Hard
An adviser reviews a 2x (daily) leveraged equity-index ETF with a client. All of the following statements are accurate EXCEPT:
Solution
B is correct. A 2x daily leveraged ETF targets twice the index's DAILY return, not its annual return. Because the fund resets exposure each day, returns compound along the price path; over multi-day periods—especially volatile, range-bound ones—the cumulative result can diverge substantially from twice the index's period return and may even be negative when the index ends roughly flat. Daily resetting, compounding (volatility) decay in choppy markets, and a short-term tactical purpose are all accurate descriptions of the product.