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FINRA SERIES 66 Exam (page: 4)
FINRA Series66 (Series66) NASD Series 66
Updated on: 15-Feb-2026

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SERIES 66 PDF 251 Questions

Interest rate risk represents the potential for the market value of a bond to decline if interest rates:

  1. Increase
  2. Decrease
  3. Equal the Consumer Price Index
  4. Stay the same

Answer(s): A

Explanation:

Interest rates and the price of bonds have an inverse relationship.
When interest rates fall, the market value of a bond will increase and vice versa. The Consumer Price Index is a measurement of the price of goods and services and is used to monitor inflation



Jasper Wrathbone owns a small but profitable pharmaceutical company in New Jersey. His company has a new arthritis pain reliever in the pipeline and is conducting extensive research and clinical trials. The FDA has just announced that all new clinical trials must now include the use of an expensive heart monitor to ensure safety to heart patients. This is an example of which type of risk:

  1. Health risk
  2. Investment risk
  3. Business risk
  4. Regulatory risk
  5. Market risk

Answer(s): D

Explanation:

This scenario represents regulatory risk and refers to the investment risk that may result from changes in state or federal laws.



The Addams Family bought a new Victorian mansion next to their current home at 1313 Mockingbird Lane. The children, Pugsley and Wednesday, are grown up and are now having children of their own. Their parents, Gomez and Morticia, want to keep them nearby and would also like to pass the new mansion on to the children. Gomez worries about Pugsley''s debt and Morticia worries about taxes. Frank N. Stein, the family''s financial advisor recommends a family limited partnership.
Which of the following statements is NOT true regarding family limited partnerships?

  1. It is used as a means of minimizing estate and gift taxes.
  2. It does not require a legitimate business purpose.
  3. It is difficult for the children''s creditors to attach the partnership''s assets.
  4. The children would become the limited partners of their parents

Answer(s): B

Explanation:

Family limited partnerships are set up in order to minimize estate and gift taxes, but they MUST have a legitimate business purpose other than just to avoid taxes. All of the other choices are true. Additionally, the parents set themselves up as general partners and transfer the property to the partnership.
While they must pay taxes on the gift to the children of the limited partnership, that tax rate would be less than if they transferred the assets directly to the children.



Which two of the following are factors in determining an investment''s total return?

  1. Yield
    II. Future value of money
    III. Growth
    IV. Internal rate of return
  2. I and II
  3. I and III
  4. IV only
  5. II and IV

Answer(s): B

Explanation:

Total return of an investment considers any cash flow from interest or dividends (yield) plus or minus any appreciation or depreciation in the value of the investment (growth). For example, an 8% bond is purchased at par $1,000. A year later, the bond is worth $980. In spite of the 8% return in interest, the bond has lost 2% of its value for a total return of 6%. Future value of money is a calculation that determines how much today's investment will be worth at a later date



Marty and Gloria Brown are young investors with a retirement portfolio that invests 100% in a large U.S. pharmaceutical company. They hire an investment advisor to be sure they''re on track and he returns with a proposal that allocates the Browns'' investment as follows:
60% large cap stocks, 20% mid-cap stocks, 10% international stocks, 5% bonds and 5% cash This is an example of:

  1. Tactical Asset Allocation
  2. Downsizing
  3. Diversification
  4. Market Capitalization

Answer(s): C

Explanation:

While a U.S. pharmaceutical company may be a strong investment, the Browns' current investment strategy leaves them open to market risk, regulatory risk, business risk and interest rate risk. Their advisor has recommended diversifying their holdings to reduce the risk across several different types of investments that are aimed to balance the portfolio.



Which of the following would be a suitable investment for someone whose main objective is preservation of capital? (choose all that apply) I Money market funds
II. Common stocks
III. Municipal bonds
IV. Fixed annuities

  1. Corporate bonds
    VI. T-bills
  2. I only
  3. III, V and VI
  4. IV and VI
  5. I and VI
  6. II and IV

Answer(s): D

Explanation:

Money-market funds and T-bills would be the most suitable investments for someone whose interest is in preserving capital. They are very conservative and safe investments



Which of the following would represent the highest degree of interest-rate risk?

  1. A 30-year 7% ''AA'' corporate bond
  2. A five-year CD
  3. A savings account
  4. a 30-year 5% 'AAA' bond
  5. A zero-coupon bond

Answer(s): D

Explanation:

Interest-rate risk will affect both stocks and bonds. Investors who buy bonds run the risk of the bond's market value declining when interest rates rise. Longer maturing bonds tend to be more vulnerable to interest-rate risk; the same is true for bonds paying lower interest rates. Thus, the 30-year 5% 'AAA' bond would be riskier than the 7% 'AA' corporate bond.
Whether the bond is rated 'AAA' or 'AA' does not matter in this example. The rating of a bond can help determine business risk, but does not factor in to the interest- rate question.



Which of the following is NOT an example of a passive investment strategy?

  1. Indexing
  2. Buy and Hold
  3. Tactical asset allocation
  4. Systematic re-balancing

Answer(s): C

Explanation:

All of the choices except tactical asset allocation describe passive investment strategies. Tactical asset allocation strategy believes that markets are inefficient and that asset allocation can be actively managed, or balanced, based on market trends and economic events for the best return. This is also known as a market timing approach



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