NASAA Series 66 practice questions

How to use this practice set

The Series 66 has 100 scored questions and 10 unscored pretest items. At least 73 of the scored questions must be correct. The content weights are 8% economics, 17% investment vehicles, 30% recommendations and strategies, and 45% law and unethical practices. This practice set samples those domains, but it is not a full mock and its percentage should not be converted directly into an official result.

Answer each question before reading the explanation. Then explain why every distractor is wrong. If you guessed correctly, still write the reason you chose it. The examples are original educational scenarios, not copied NASAA exam content.

Question 1: identify a current yield

A corporate bond has a $1,000 par value, pays a 4.8% annual coupon, and is quoted at $960. Ignoring accrued interest, what is its current yield?

1. 4.61%
2. 4.80%
3. 5.00%
4. 5.21%

Answer: C. The annual coupon is $1,000 x 0.048 = $48. Current yield is coupon dollars divided by market price: $48/$960 = 0.05, or 5.00%. A reverses the relationship; B is the coupon rate based on par; D is an arithmetic distractor. Calculate before matching an answer choice.

The distinction matters because current yield uses today's price, while coupon rate uses par. Yield to maturity is broader still: it considers coupons, purchase price, maturity value, and timing under assumptions. A test question asking specifically for current yield does not require estimating YTM.

Question 2: choose a vehicle for a near-term need

A client needs a fixed tuition payment in 10 months and cannot postpone it. Which portfolio feature should receive greatest emphasis for the funds reserved for that payment?

1. Maximum long-term capital appreciation, even if the value may fall sharply at the payment date.
2. Liquidity and relatively low short-term volatility matched to the known withdrawal date.
3. A high distribution rate from an illiquid private fund.
4. A concentrated position in a single growth stock because the client has a long retirement horizon.

Answer: B. The payment is near and essential, so the adviser should emphasize access to the money and the client's capacity to absorb a loss. A long retirement horizon may apply to other assets but does not erase the tuition date. A and D ignore the short-term liability and market-loss risk. C adds illiquidity and may not provide dependable principal or access when needed. Lower volatility does not mean risk free; credit and inflation risks still matter.

Question 3: ETF pricing

An investor places an order to sell an ETF at 2 p.m. Which statement best describes how the shares generally trade?

1. The investor redeems directly with the fund at the next once-daily NAV.
2. The order may execute on an exchange at a market price that differs from NAV.
3. The price must equal NAV because the ETF owns a diversified basket.
4. The fund's sponsor guarantees a sale at the previous day's closing price.

Answer: B. ETF shares trade on an exchange during market hours and can trade at a premium or discount to NAV. A describes the typical forward pricing of open-end mutual fund orders. C incorrectly treats diversification as a pricing guarantee. D invents a price guarantee. A market order also does not guarantee a particular execution price, especially in a fast or illiquid market.

Question 4: calculate tax-equivalent yield

A municipal bond yields 3.9%. A client is in a 35% marginal tax bracket. Using the simplified formula and ignoring state tax, what taxable yield is comparable?

1. 1.365%
2. 2.535%
3. 6.00%
4. 11.14%

Answer: C. Divide the tax-exempt yield by one minus the tax rate: 0.039/(1 - 0.35) = 0.039/0.65 = 0.06, or 6%. A multiplies the yield by the tax rate; B multiplies by the after-tax fraction; D divides by 0.35. The result is a comparison, not a recommendation. Credit risk, call terms, liquidity, state taxes, and the client's actual tax treatment remain relevant.

Question 5: distinguish an IAR from an adviser

A firm charges clients for ongoing portfolio advice. An employee recommends securities and solicits prospective advisory clients for that firm. Which distinction is most accurate?

1. The firm may be the investment adviser, while the employee's functions may make the employee an IAR under the applicable definition.
2. Only the employee can be an investment adviser because the employee speaks with clients.
3. The firm cannot be an adviser if it employs an individual representative.
4. Anyone with a finance job title is automatically an IAR in every state.

Answer: A. The firm provides the advisory service, while the individual's advisory, solicitation, or recommendation functions may meet the IAR definition. B and C wrongly assume the firm and employee cannot have distinct roles. D substitutes a job title for the statutory definition and applicable registration rules. A complete analysis still considers the person's exact duties and state requirements.

Question 6: adviser conflict and disclosure

An adviser receives a referral payment for recommending a private fund with limited redemption. The client needs most of the account for a home purchase in one year. What should the adviser do?

1. Recommend the fund because referral payments are permitted if the client signs a disclosure.
2. Analyze the client's liquidity need, the fund's risks and costs, address the compensation conflict, and consider suitable alternatives.
3. Recommend the fund if its prior distribution exceeded bank rates.
4. Ignore the conflict because the client, not the adviser, bears the investment loss.

Answer: B. The recommendation must account for the near-term cash need and limited liquidity, and the adviser's compensation creates a conflict to address. Disclosure alone does not automatically cure an unsuitable recommendation. A overstates what a signature does. C treats past distribution as decisive and ignores access to funds. D ignores the adviser's duties.

Question 7: analyze an exemption carefully

A question states that a transaction qualifies for an exemption from securities registration and asks whether that fact alone eliminates all antifraud obligations. Which response is best?

1. Yes, an exempt transaction is outside securities law entirely.
2. No, a registration exemption does not automatically remove antifraud requirements.
3. Yes, provided the issuer is private.
4. No, because every exempt transaction must be registered first.

Answer: B. A transaction exemption addresses a registration requirement; it is not a blanket exception from antifraud provisions. A and C overstate the exemption. D is also wrong because an exemption may remove the registration requirement if its conditions are met. Keep exempt security, exempt transaction, and exempt person concepts separate.

Question 8: specific trade authorization

A client directs an adviser to buy 50 shares of LMN. Without discretionary authority, the adviser instead buys 50 shares of RST. Which statement is most accurate?

1. The instruction authorized any security of the same value.
2. The adviser acted beyond the client's specific instruction by choosing a different security.
3. The trade is authorized if RST rises in value.
4. A trade confirmation after execution gives the adviser authority retroactively.

Answer: B. The client specified the security and quantity. The instruction does not authorize a different transaction. A changes the written instruction; C confuses investment outcome with authority; D confuses later reporting with prior permission. The adviser's confidence in RST does not supply trading discretion.

Question 9: NPV calculation

A project costs $10,000 today and is expected to produce $10,800 in one year. Using a 5% discount rate, what is the approximate NPV?

1. Negative $286
2. Zero
3. Positive $286
4. Positive $800

Answer: C. Present value of the future receipt is $10,800/1.05 = about $10,286. Subtract the initial $10,000 cost to get a positive NPV of approximately $286. A reverses the sign, B ignores the discounted amount, and D compares the nominal increase of $800 without discounting. The calculation depends on the stated cash-flow and discount assumptions.

Question 10: distinguish the Uniform Securities Act version

Which Uniform Securities Act version does the NASAA Series 66 study guide identify as testable?

1. The Uniform Securities Act of 2002 only.
2. The Uniform Securities Act of 1956 as amended by NASAA.
3. Any state statute, regardless of whether the outline identifies it.
4. The 1933 Securities Act under a state-law label.

Answer: B. The NASAA Series 66 guide specifies the 1956 Uniform Securities Act as amended by NASAA. It explicitly distinguishes that source from the later 2002 Uniform Securities Act. A picks the later model act; C ignores the exam's defined source; D confuses federal securities legislation with the model state act.

Question 11: understand a risk statistic

Which measure most directly describes how returns on two assets move in relation to one another?

1. Correlation
2. Beta
3. Current ratio
4. P/E ratio

Answer: A. Correlation measures the degree and direction of co-movement between return series. Beta measures sensitivity to market movement. Current ratio is a liquidity measure, and P/E compares share price with earnings per share. A low correlation may help portfolio diversification, but it does not guarantee that losses cannot occur.

Review the reasoning, not only the result

A useful review note is specific: 'I confused coupon with current yield because I used par rather than market price' or 'I treated a transaction exemption as an antifraud exemption.' These notes point to a repeatable correction. A generic note such as 'study bonds' does not identify the decision that failed.

For legal items, write the actor and capacity before applying the rule. For recommendation items, list horizon, liquidity, risk capacity, tax position, and account facts. For calculations, label units and denominators. Then solve a fresh variation. If the bond price changes from $960 to $900, current yield changes; if the adviser loses the referral payment, the client-fit analysis still remains.

Use practice in mixed blocks. The real exam does not label a question 'fiduciary duty' or 'bond yield.' A mixed set tests whether you can recognize which concept is relevant and finish under the 150-minute time limit. Review correct guesses as well as missed questions, because unexplained luck is not durable knowledge.

Sources

NASAA Series 66 Exam Study Guide and Test Specifications effective June 12, 2023; NASAA Series 66 Exam Content Outline; FINRA Series 66 exam page. Questions are original educational examples, not official items.