Analytical Methods, Ratios and Valuation Tools
Series 66 analytical questions focus on time value of money, descriptive statistics, risk measures, financial ratios, and valuation ratios.
How to study the Series 66
Treat the Series 66 as a dual-capacity exam: know the product, profile the client, then identify whether the person is acting as agent, adviser, or IAR.
Core concepts
Concept 1
IRR, NPV, present value, future value, and discounted cash flow connect cash-flow timing to investment decisions.
Exam cue: Classify whether the item asks for value, risk, return, relationship, liquidity, leverage, or valuation.
Concept 2
Mean, median, mode, standard deviation, alpha, beta, Sharpe ratio, and correlation describe risk, return, and relationships.
Exam cue: Use beta for market sensitivity and standard deviation for volatility.
Concept 3
Current ratio, quick ratio, debt-to-equity, P/E, and P/B are useful only when interpreted in context.
Exam cue: Do not let a ratio answer stand without context.
Risk pitfalls and guardrails
Using beta as total-risk measurement.
Guardrail: Avoid answers that blur capacity, skip disclosure, ignore custody, or give unlimited administrator power.
Treating high P/E as always favorable.
Guardrail: Avoid answers that blur capacity, skip disclosure, ignore custody, or give unlimited administrator power.
Confusing NPV with IRR.
Guardrail: Avoid answers that blur capacity, skip disclosure, ignore custody, or give unlimited administrator power.
Memory anchors
Present Value
Present value discounts future cash flows back to today's dollars.
Future Value
Future value compounds today's amount forward over time.
IRR
Internal rate of return is the discount rate that makes NPV equal zero.
NPV
Net present value compares discounted inflows with discounted outflows.
Standard Deviation
Standard deviation measures dispersion around an average return.
Beta
Beta measures sensitivity to broad market movement.
Alpha
Alpha measures return above or below a benchmark after adjusting for risk.
Sharpe Ratio
Sharpe ratio compares excess return with volatility.
Correlation
Correlation measures how two investments move in relation to each other.
Debt-to-Equity
Debt-to-equity compares leverage from debt with owners' equity.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A client wants a single measure of how sensitive a stock is likely to be to broad market movements. Which statistic answers that question?
An adviser evaluates a project by finding the discount rate at which the present value of expected inflows equals the present value of outflows. Which measure is being calculated?
Answer all questions to submit.
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Move forward only after this module is stable.
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