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51 multiple-choice questions and 50 flashcards on Investment Vehicle Characteristics, about 20% of the Series 66 bank. Every one carries a written rationale.
Investment Vehicle Characteristics is one of 4 chapters in CoStudy's Series 66 bank, and it holds 51 of the bank's 260 multiple-choice questions — roughly 20% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
10 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
Tax-equivalent yield for a 4% municipal bond purchased by a client in the 32% federal bracket is closest to:
Answer: D — 5.88% based on dividing the tax-free coupon by one minus the marginal tax rate
A) Multiplies instead of divides. B) Ignores the comparison to taxable yield. C) Wrong divisor. D) Correct — TEY = 4% / (1 - 0.32) = 5.88%.
The characteristic that distinguishes preferred stock from common stock is that preferred typically:
Answer: C — Carries a fixed dividend rate and priority over common stock in liquidation payouts
A) That's common. B) Preferred usually lacks voting. C) Correct. D) Reverses the priority.
A mutual fund's expense ratio typically includes which of the following costs?
Answer: C — Management fees, administrative costs, and 12b-1 fees as a percentage of assets
A) Loads are separate, not part of the ongoing expense ratio. B) CDSC is also separate from the expense ratio. C) Correct — the expense ratio bundles management, admin, and 12b-1 costs. D) Trading commissions are generally excluded from the disclosed expense ratio.
In the event of issuer liquidation, subordinated debt holders are generally paid:
Answer: C — After senior debt holders are paid in full but before equity holders
A) Reverses priority — equity is always paid last, not before secured debt. B) Subordinated debt is junior to senior debt. C) Correct — subordinated ranks below senior debt but above equity. D) Subordinated debt is not paid first.
A key risk of private equity investing that distinguishes it from publicly traded equity is:
Answer: B — Illiquidity, since capital is typically locked up for years with limited exit options
A) Private equity lacks daily mark-to-market pricing — the opposite issue. B) Correct — long lockups and limited secondary markets are defining risks. C) No such mandatory distribution rule exists. D) No capital preservation guarantee exists.
An individual meeting the SEC's 'accredited investor' net worth test would generally need:
Answer: A — A net worth exceeding $1 million, excluding the value of a primary residence
A) Correct — the standard net worth threshold excludes the primary residence. B) The income threshold is much higher than $50,000. C) Understates the amount and wrongly includes the primary residence. D) Not a requirement for accredited investor status.
A hedge fund organized under Investment Company Act Section 3(c)(7) may sell interests to:
Answer: C — An unlimited number of qualified purchasers meeting the statutory investment thresholds
A) That's a Reg D 506(b) parameter, not ICA. B) 100-beneficial-owner cap is 3(c)(1). C) Correct. D) Confuses ICA exclusion with Reg D.
The holder of a put option who exercises it will:
Answer: B — Sell the underlying stock to the option writer at the strike price
A) That's what a call holder does upon exercise. B) Correct — exercising a put means selling at the strike price. C) Exercise isn't a premium refund. D) Exercise doesn't extend expiration.
A call option gives the holder the right, but not the obligation, to:
Answer: A — Buy a specified quantity of the underlying security at the strike price
B) That's a put option. A) Correct — a call is a right to buy. C) Options don't confer dividend rights. D) Options don't confer voting rights.
Rights of Accumulation (ROA) allow a mutual fund investor to qualify for a breakpoint by:
Answer: C — Aggregating existing holdings of related accounts to reach the breakpoint threshold
A) That's LOI. B) Wrong mechanism. C) Correct — ROA counts existing plus new holdings for related accounts. D) ROA is limited to related accounts.
4 cards from the 50 in this chapter.
What is a SEP-IRA?
Simplified Employee Pension — employer-funded retirement plan. Contribution limit: lesser of 25% of compensation or annual cap. Easier than 401(k).
What is a Health Savings Account (HSA)?
Tax-advantaged account paired with a high-deductible health plan. Triple tax benefit: deductible contributions, tax-deferred growth, tax-free withdrawals for qualified medical expenses. No RMDs.
What is a callable bond?
A bond the issuer can redeem before maturity at a specified price. Issuer benefits if rates fall (refinance cheaper); investor receives call premium.
What is the difference between equity and mortgage REITs?
Equity REITs own and operate real estate (rental income). Mortgage REITs (mREITs) lend money or own mortgage securities (interest income). Hybrid REITs do both.
These are a sample. The full Investment Vehicle Characteristics chapter runs 101 items with per-chapter progress tracking, on the web and in the iOS app.