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Series 66 · 17% of the exam

Investment Vehicle Characteristics practice questions

10 free Investment Vehicle Characteristics questions for the Uniform Combined State Law Exam (Series 66) exam, each with the correct answer and an explanation for every option.

Start the questionsFree 10-question Series 66 quiz

What this domain covers

The products an adviser or agent recommends: cash equivalents, bonds, stocks, pooled investments, derivatives, insurance products and alternatives, and how each one behaves.

Exam weight
17%
On a real exam
≈ 19 questions
In our bank
103 questions

Topics that come up most

  • Fixed income: types of bond, yields and duration
  • Equities: common and preferred stock, rights and warrants
  • Pooled investments: mutual funds, ETFs, UITs and REITs
  • Options and futures basics
  • Annuities, variable life and other insurance-based products

How to study it

Make a comparison table of the pooled products covering pricing, share classes, fees and liquidity; questions often turn on the difference between a mutual fund and an ETF or a fixed and a variable annuity.

Sample Investment Vehicle Characteristics questions

Try each one before opening the answer. Original questions written to the official exam objectives.

  1. Question 1

    Buying a call and a put on the same stock with the same strike and expiration is a:

    • AProtective collar
    • BCovered call
    • CBull call spread
    • DLong straddle
    Show answer and explanation

    Answer: D) Long straddle

    • AIncorrect. That uses stock plus options.
    • BIncorrect. That sells a call on owned stock.
    • CIncorrect. That uses two calls.
    • DCorrect. It profits from big moves either way.

  2. Question 2

    Dana, age 45, leaves her employer with $12,000 still owed on a 401(k) loan. The plan offsets the unpaid balance against her account. Which statement about the $12,000 offset is accurate?

    • AShe can avoid tax by rolling over $12,000 to an IRA by her tax return due date, including extensions, for the offset year
    • BShe can avoid tax only by rolling over $12,000 to an IRA within 60 days of the date the plan offsets the loan
    • CThe offset is taxable income, but the 10% additional tax can't apply because the offset results from separating from service
    • DThe offset isn't taxable because a plan loan is a debt she owes to her own account and is not treated as a distribution
    Show answer and explanation

    Answer: A) She can avoid tax by rolling over $12,000 to an IRA by her tax return due date, including extensions, for the offset year

    A 401(k) loan offset after leaving a job is an actual distribution. It is taxable, and possibly subject to the 10% additional tax, unless it is rolled over by the tax return due date, including extensions, for the year of the offset.

    • ACorrect. For a plan loan offset caused by severance from employment or plan termination, the IRS allows a rollover until the due date of the federal return, including extensions, for the year of the offset. Any amount she doesn't roll over is taxable.
    • BIncorrect. Since 2018, a qualified plan loan offset caused by severance from employment has an extended rollover period: the tax return due date, including extensions. It is not limited to 60 days.
    • CIncorrect. Any part she doesn't roll over can be subject to the 10% additional tax because she is under 59½. The separation-from-service exception requires separating in or after the year she turns 55, and she is 45.
    • DIncorrect. The IRS treats a plan loan offset as an actual distribution. Any amount she doesn't roll over is taxable.

  3. Question 3

    Which statement best describes the portfolio of a unit investment trust (UIT)?

    • AA relatively fixed portfolio of securities, generally held with little change until the trust terminates
    • BA portfolio actively traded by an investment adviser who reports to the trust's board of directors
    • CA portfolio that changes daily as the trust continuously issues new shares and invests the cash
    • DA leveraged, actively managed portfolio whose shares are issued once and then trade only on an exchange
    Show answer and explanation

    Answer: A) A relatively fixed portfolio of securities, generally held with little change until the trust terminates

    A UIT buys a relatively fixed portfolio of securities and holds it with little change until a set termination date. It has no board or investment adviser actively managing the portfolio.

    • ACorrect. A UIT invests in a relatively fixed portfolio of securities. It has no board of directors, officers or investment adviser to actively trade it, and it ends on a set termination date.
    • BIncorrect. UITs have no board of directors, corporate officers or investment adviser, and they don't actively trade their portfolios.
    • CIncorrect. This describes an open-end mutual fund. A UIT typically offers a specific, fixed number of redeemable units.
    • DIncorrect. This sounds like a closed-end fund. A UIT's portfolio is fixed rather than actively managed, and its units are redeemable. Sponsors may also keep a secondary market for the units.

  4. Question 4

    Under the Uniform Securities Act, a variable annuity is:

    • AA bank deposit
    • BExempt insurance
    • CA security
    • DA commodity
    Show answer and explanation

    Answer: C) A security

    • AIncorrect. It isn't a deposit.
    • BIncorrect. Only fixed products are excluded.
    • CCorrect. Its value depends on investment performance.
    • DIncorrect. It is a security.

  5. Question 5

    A company calls its convertible bonds when the conversion value is above the call price. Holders will usually:

    • AAccept the lower call price in cash
    • BConvert into stock rather than take the call price
    • CRefuse the call and keep the bonds
    • DSue the issuer for calling the bonds before maturity
    Show answer and explanation

    Answer: B) Convert into stock rather than take the call price

    • AIncorrect. Converting is worth more.
    • BCorrect. This is called forced conversion.
    • CIncorrect. A call ends the bonds.
    • DIncorrect. Calls follow the indenture.

  6. Question 6

    A convertible term life policy lets the insured:

    • AConvert the policy into the insurer's stock
    • BSwitch to permanent coverage without new proof of insurability
    • CTurn the death benefit into a CD
    • DCancel and recover all premiums paid, with interest
    Show answer and explanation

    Answer: B) Switch to permanent coverage without new proof of insurability

    • AIncorrect. That isn't the feature.
    • BCorrect. Deadlines apply.
    • CIncorrect. That isn't the feature.
    • DIncorrect. That isn't the feature.

  7. Question 7

    Unlike limited partnerships, REITs:

    • APass losses to investors
    • BCan't pass through losses
    • CPay no distributions
    • DAre closed to retail buyers
    Show answer and explanation

    Answer: B) Can't pass through losses

    • AIncorrect. That's DPPs.
    • BCorrect. Losses stay inside the REIT.
    • CIncorrect. They must distribute income.
    • DIncorrect. Many are publicly traded.

  8. Question 8

    Class A mutual fund shares usually carry:

    • AA level ongoing load
    • BA back-end CDSC only
    • CA front-end load
    • DNo expenses whatsoever
    Show answer and explanation

    Answer: C) A front-end load

    • AIncorrect. That's typical of Class C.
    • BIncorrect. That's typical of Class B.
    • CCorrect. Breakpoints can reduce it.
    • DIncorrect. Ongoing expenses apply.

  9. Question 9

    A zero-coupon bond pays its return through:

    • AMonthly interest
    • BSemiannual coupons
    • CDividends
    • DGrowth to face value
    Show answer and explanation

    Answer: D) Growth to face value

    • AIncorrect. It pays no coupons.
    • BIncorrect. It pays no coupons.
    • CIncorrect. Bonds pay interest.
    • DCorrect. It's bought at a deep discount.

  10. Question 10

    Universal life insurance is best described as permanent insurance with:

    • AFlexible premiums and an adjustable death benefit
    • BNo cash value of any kind, like a term policy that never expires
    • CA death benefit tied to stock subaccounts
    • DCoverage only for a set number of years
    Show answer and explanation

    Answer: A) Flexible premiums and an adjustable death benefit

    • ACorrect. Cash value earns a declared rate.
    • BIncorrect. It builds cash value.
    • CIncorrect. That's variable life.
    • DIncorrect. That's term life.

Investment Vehicle Characteristics: FAQs

How much of the Series 66 exam is Investment Vehicle Characteristics?

Investment Vehicle Characteristics is 17% of the Series 66 exam by the official exam guide's weighting, which on a 110-question form works out to roughly 19 questions. The real exam's exact split varies by form.

What does the Investment Vehicle Characteristics domain cover?

The products an adviser or agent recommends: cash equivalents, bonds, stocks, pooled investments, derivatives, insurance products and alternatives, and how each one behaves.

How should I study Investment Vehicle Characteristics for Series 66?

Make a comparison table of the pooled products covering pricing, share classes, fees and liquidity; questions often turn on the difference between a mutual fund and an ETF or a fixed and a variable annuity.

Where can I practise more Investment Vehicle Characteristics questions?

This page has 10 free Investment Vehicle Characteristics questions with answers. The ExamWize Series 66 question bank has 103 questions in this domain. Every practice exam result breaks your score down by domain, and Review Mode re-drills the questions you missed.

Other Series 66 topics

Also: 15 free questions across all topics, the Series 66 cheat sheet and the study guide.

Get Investment Vehicle Characteristics exam-ready

The full Series 66 bank has 103 Investment Vehicle Characteristics questions. Timed practice exams match the real exam's length and domain weights, every result shows your score per domain, and Review Mode re-drills the questions you missed.

See the full Series 66 practice examsTake the free diagnostic

Not affiliated with NASAA; questions are original, written from the official exam outline, and never copied from the real exam.