Series 66 Investment Vehicle Characteristics Practice Questions

Correct answer: C. An equity REIT primarily owns and operates income-producing real property, earning rental income, while a mortgage REIT primarily originates or purchases mortgages or mortgage-backed securities, earning interest income

Equity REITs generate revenue by owning and operating physical properties (rental and lease income plus property appreciation), whereas mortgage REITs generate revenue from interest on mortgage loans and mortgage-backed securities they originate or hold, making them more directly sensitive to interest rate movements. Both REIT types are subject to the same 90% distribution requirement.

• AA. Mortgage REITs are highly exposed to interest rate risk, since their funding costs, the spread they earn, and prepayment speeds all move with rates. Their income is not insulated from rates, and equity REIT rents are not simply tied to short-term rates.
• BB. This reverses the income sources. Equity REITs hold properties mainly for rental income, and mortgage REITs hold mortgages and MBS and earn interest income, not rent. Neither is defined by short-term trading for capital gains.
• CC. Correct: equity REITs own and operate income-producing property and earn rental income, while mortgage REITs primarily originate or buy mortgages or MBS and earn interest income.
• DD. The distribution requirement of at least 90% of taxable income applies to REITs of both types, so mortgage REITs are not exempt. A qualifying REIT deducts dividends it pays, so distributed income is generally not taxed at the entity level. Interest income gives no exemption from the rule.

• Source: Exam outline: NASAA Series 66 Exam Content Outline, accessed October 2026

Correct answer: D. Closed-end fund shares trade on the secondary market at prices that may differ from net asset value

A closed-end fund issues a fixed number of shares in an initial offering and then trades on an exchange or over-the-counter, where its market price is set by supply and demand and can trade at a premium or discount to NAV. Open-end funds, by contrast, continuously issue and redeem shares directly with the fund at NAV, which is the opposite of continuous issuance or once-a-day NAV pricing. Closed-end funds are also permitted to use leverage, such as borrowing or preferred shares, so a ban on leverage is not a distinguishing feature.

• AA. Incorrect. Closed-end funds may use leverage, such as borrowing or issuing preferred shares, within Investment Company Act limits. Their fixed capital base makes leverage easier for them to use than for open-end funds, which face redemption pressure.
• BB. Incorrect. Once-a-day pricing at net asset value describes how open-end funds handle purchases and redemptions. Closed-end shares trade throughout the day at market-determined prices, which can sit above or below NAV.
• CC. Incorrect. Continuous issuance of new shares to meet demand describes open-end funds. Closed-end funds issue a fixed number of shares in their initial offering, and investors then trade those shares with each other.
• DD. Correct. Closed-end fund shares trade on the secondary market at prices set by supply and demand, which may be above (premium) or below (discount) net asset value.

• Source: Exam outline: NASAA Series 66 Exam Content Outline, accessed October 2026

Correct answer: C. Exempt from federal income tax, and potentially exempt from that state's income tax for residents of the issuing state

Interest on most municipal bonds is exempt from federal income tax. If the investor resides in the state (or in some cases locality) that issued the bond, the interest is often also exempt from that state's income tax, making it 'double tax-exempt' for in-state residents.

• AA. Incorrect - the federal exemption is available to individual investors generally, not limited to institutions.
• BB. Incorrect - this describes taxable bonds such as corporate bonds, not municipal bonds.
• CC. Correct - this reflects the standard federal (and often state, for residents) tax-exempt treatment of municipal bond interest.
• DD. Incorrect - this reverses the treatment; municipal interest is generally exempt from federal tax, and any state exemption typically depends on the investor's residency.

• Source: Exam outline: NASAA Series 66 Exam Content Outline, accessed October 2026

Correct answer: C. $3,800

The put writer's loss is greatest if the stock falls to zero, when the writer must buy at $40 a share worth nothing. The loss is $40 less the $2 premium collected, or $38 x 100 shares = $3,800.

• AA. Wrong: this is the maximum gain, the premium received.
• BB. Wrong: this ignores the premium that offsets part of the loss.
• CC. Correct: ($40 - $2) x 100 = $3,800.
• DD. Wrong: this adds the premium instead of subtracting it.

• Source: FINRA Investor Education: Options, accessed October 2026