NASAA Series 65 practice test and questions

Use practice to diagnose decisions, not memorize answers

The Series 65 contains 140 administered questions, of which 130 count toward the score and 10 are unscored pretest items. The passing score is 92 correct answers among the 130 scored questions. A practice set can help you learn the blueprint, but a percentage on a third-party quiz does not convert mechanically into an exam result. Question quality, topic coverage, timing, and whether you can explain your reasoning all matter.

The official content outline assigns 15% to economic factors and business information, 25% to investment vehicle characteristics, 30% to client investment recommendations and strategies, and 30% to laws and unethical business practices. Use that distribution to guide review. The questions below are original illustrations written for practice; they are not NASAA questions and do not reproduce protected exam content.

For every item, identify the task before calculating or choosing. Is the prompt asking for a yield, a legal duty, a transaction feature, or the most appropriate recommendation? Then underline the client constraint or product detail that changes the answer. After checking the explanation, record why each distractor is wrong. That review is more valuable than rushing into another set while repeating the same error.

Question 1: inflation and real return

An investor earns a nominal return of 6.0% over a year while inflation is 2.5%. Which statement best describes the investor's approximate real return?

1. Approximately 8.5%, because nominal return and inflation are added.
2. Approximately 3.5%, using nominal return minus inflation.
3. Exactly 6.0%, because inflation affects purchasing power but not return.

Answer: B. The quick approximation is nominal return minus inflation: 6.0% - 2.5% = 3.5%. The exact Fisher calculation is (1.06 / 1.025) - 1, or about 3.41%. For an exam question asking for an approximate real rate, subtraction is appropriate. A adds inflation to nominal return, reversing the adjustment. C confuses the statement's nominal percentage with the change in purchasing power. Read whether the question asks approximate or exact; both methods point to a real return below the nominal rate.

Question 2: current yield

A bond has $1,000 face value, a 5% annual coupon, and a current market price of $920. Ignoring accrued interest, what is its current yield?

1. 4.60%
2. 5.00%
3. 5.43%

Answer: C. Annual coupon dollars are $1,000 x 0.05 = $50. Current yield is $50 / $920 = 5.4348%, or about 5.43%. A multiplies the coupon by the market price, which is not the formula. B reports the coupon rate, which is based on face value. The bond's yield to maturity is not asked: YTM also considers the price difference between $920 and the $1,000 maturity value and the timing of payments.

Question 3: select a suitable short-horizon investment

A client expects to pay a home deposit in 14 months. The amount is essential to the purchase, and the client says a substantial loss would force a delay. Which recommendation characteristic should carry the most weight?

1. A diversified portfolio of small-company stocks because diversification removes loss risk.
2. A highly leveraged private real-estate partnership because it may distribute more income.
3. A liquid, lower-volatility allocation matched to the payment date, while explaining that no investment is risk free.

Answer: C. The fixed near-term liability and low capacity for loss make liquidity and preservation central. The adviser should consider an appropriate cash or short-term instrument and explain credit, inflation, and other remaining risks. A is wrong because diversification can reduce company-specific risk but cannot eliminate market loss, especially over a short horizon. B adds leverage, valuation uncertainty, and likely illiquidity that conflict with the known withdrawal date. The desired return does not override the client's ability to absorb a loss.

Question 4: ETF and open-end fund pricing

At 1:00 p.m., an investor places a market order to sell shares of an exchange-traded fund. Which statement is generally correct?

1. The order can execute during the trading day at a market price that may differ from net asset value.
2. The order is redeemed directly with the fund at the next once-daily net asset value.
3. The investor is guaranteed to receive net asset value because ETFs hold a diversified portfolio.

Answer: A. ETF shares trade on an exchange during the day, and execution is at a market price shaped by supply, demand, liquidity, and bid-ask spread. That price can be above or below NAV. B describes the usual forward-pricing mechanism for open-end mutual fund orders. C wrongly treats diversification as a pricing guarantee. A market order also does not guarantee a particular price, especially in a fast or illiquid market.

Question 5: municipal taxable-equivalent yield

A client in a 25% marginal tax bracket considers a municipal bond yielding 3.6%. Using the simplified taxable-equivalent-yield formula and ignoring state tax, what taxable yield is comparable?

1. 2.70%
2. 4.80%
3. 14.40%

Answer: B. Divide the tax-exempt yield by one minus the tax rate: 0.036 / (1 - 0.25) = 0.036 / 0.75 = 0.048, or 4.8%. A multiplies by 0.75 instead of dividing. C divides by the tax rate itself. This comparison does not establish that the municipal bond is the better investment. Credit risk, call risk, liquidity, state tax treatment, alternative minimum tax, and the investor's actual circumstances still matter.

Question 6: fiduciary conflict

An investment adviser receives a referral payment from a private fund. The fund is illiquid and charges more than a comparable diversified fund. A client needs most of the account for a planned expense in two years. What is the strongest response?

1. Recommend the private fund after mentioning the referral payment in a footnote; disclosure resolves the conflict.
2. Assess the client's need for liquidity and the fund's risks and costs, address the referral conflict, and consider reasonable alternatives before making any recommendation.
3. Recommend the fund if its historical return exceeded the market, because performance controls the suitability analysis.

Answer: B. The facts present both a client-fit problem and an adviser conflict. The short horizon conflicts with limited redemption, and the payment may influence advice. A clear disclosure is important but does not by itself make an inappropriate recommendation acceptable. C treats historical performance as determinative and ignores liquidity, fees, and the client's objective. The adviser should analyze the complete circumstances, manage the conflict under applicable duties, and avoid recommending a product that does not serve the client.

Question 7: authority to trade

A client emails an adviser, 'Buy 50 shares of ABC today.' The adviser instead buys 50 shares of XYZ, believing it has better prospects. The client has not granted discretionary authority. Which statement is most accurate?

1. The adviser had authority because the client authorized a stock purchase of the same size.
2. The adviser exceeded the specific instruction by choosing a different security.
3. The trade is authorized if the adviser later explains the rationale on the account statement.

Answer: B. The client specified both the security and quantity. Permission to execute one transaction does not grant discretion to substitute another security. A ignores the named issuer in the instruction. C confuses later disclosure with prior authorization. The adviser's belief about relative prospects does not replace client authority. A different result would require facts establishing valid discretionary authority and its scope.

Question 8: annuity liquidity and tax treatment

A client may need the entire investment within three years. An adviser proposes a variable annuity, emphasizing tax-deferred growth. Which fact should the client weigh especially carefully?

1. A variable annuity's value is linked to separate-account investments and contract charges or surrender terms may make an early exit costly.
2. Tax-deferred growth guarantees a positive return and makes withdrawals tax free.
3. Variable annuities have no investment risk because the insurer holds the contract.

Answer: A. Variable annuity value depends on the chosen investment options, and contract charges and surrender provisions can matter when the investor has a short horizon. Tax deferral is not the same as tax-free withdrawals, and it does not guarantee investment growth. B combines two false claims. C confuses the insurer's contractual role with a guarantee of the investment subaccounts. The adviser should compare fees, liquidity, benefits, tax circumstances, and alternatives against the client's expected use of the funds.

Question 9: distinguish an open-end mutual fund from a closed-end fund

A closed-end fund's shares trade at $18 while its net asset value per share is $20. Which statement best describes this situation?

1. The fund trades at a 10% discount to NAV; exchange price can differ from underlying asset value.
2. The fund trades at a 10% premium because its market price is below NAV.
3. The difference cannot occur because all investment-company shares transact at NAV.

Answer: A. The discount is ($20 - $18) / $20 = 10%. Closed-end fund shares trade in the secondary market, so supply and demand can create a premium or discount to NAV. B reverses premium and discount. C incorrectly applies open-end fund forward pricing to every investment company. A discount alone does not prove that the portfolio is undervalued or that the fund is suitable; examine the holdings, leverage, expenses, liquidity, and investor objectives.

Question 10: distinguish a bond's coupon from its credit risk

Two corporate bonds have the same maturity and coupon. Bond R has a lower credit rating and a higher market yield than Bond S. Which explanation is most consistent with fixed-income pricing?

1. Investors may demand a higher yield for Bond R to compensate for greater perceived credit risk.
2. The higher yield proves Bond R has lower default risk.
3. Credit ratings determine the coupon permanently, so market yields cannot differ.

Answer: A. Investors generally require additional yield to hold debt with greater perceived default or downgrade risk, all else equal. B reverses the relationship: higher promised yield often signals higher risk, not safety. C confuses the stated coupon with the yield required by current buyers. Market price adjusts as required yields change. A high yield should prompt analysis of the issuer, covenants, seniority, liquidity, and the client's capacity for loss.

Turn missed questions into a focused review plan

Classify each miss by cause: knowledge gap, calculation setup, misread wording, or client-fact oversight. For a calculation error, write the formula and label the numerator and denominator before substituting values. For a client-fit error, list the objective, horizon, liquidity need, and loss capacity. For an ethics error, identify the service, conflict, disclosure, and authority. This makes the next study session specific.

Review correct answers that were guesses too. A lucky answer can conceal a misunderstanding that will fail when a small fact changes. Explain why the two most tempting wrong choices fail. For example, if you chose an ETF at NAV, state why the exchange market price differs from a mutual-fund redemption price. If you chose a higher-yielding private product, state what liquidity and conflict facts could change the recommendation.

For timing practice, simulate a mixed set rather than completing only one topic at a time. The test has 140 administered items over 180 minutes, an average of about 77 seconds per item. That average includes reading and marking, so build a pace that lets you answer straightforward items promptly and return to calculations or dense scenarios. If a question is consuming time, eliminate choices that violate a clear product fact or client constraint, select the best remaining answer, and move on.

A practice score is most useful when paired with a topic breakdown and an error log. If economics is weak but ethics is strong, prioritize the weak domain while maintaining ethics with mixed review. Do not assume a vendor's raw score equals the official scaled outcome or that an isolated mock predicts your result. Consistent improvement on new, representative questions and the ability to explain reasoning provide stronger evidence of readiness.

Sources and question integrity

Blueprint and exam specifications: NASAA Series 65 Exam Study Guide and Test Specifications effective June 12, 2023, and the NASAA Series 65 Exam Content Outline. The questions and scenarios on this page are original educational examples, not official NASAA items.