Cards From Failed Questions Flashcards
Do NS&I bonds have a reinvestment limit
Yes- £500 minimum
The difference between strategic and tactical asset allocation
Strategic allocation is where a suitable asset allocation is decided by the clients risk portfolio
Tactical does the same however allows a variance of about 10% so if areas of the allocation are performing well or bad they can be altered within variance, it can also refer to the selection of specific funds where strategic would not
How is property income taxed
If property income is less than £1000 per annum before expenses then it’s exempt from income tax and doesn’t have to be declared. If it is over the threshold then it is taxed as normal income
What choices do holders of options have
To sell, let expire worthless or exercise the option on its website predetermined expirey date
What are the rates of income tax
8.75%, 33.75%, 39.35%
How are discretionary trusts taxed
Pay income tax on all income however £1000 is taxed at the rate of 8.75% (low tax band)
Can OEIC’s gear?
Yes they can gear to 10% without any time restrictions and commonly use single pricing
What are the levels of protection on a return
Hard - a definite return is guaranteed
Soft - a return is only guaranteed within a specific threshold
SDLT for BTL and second properties
They carry an additional 3% surcharge added on as a whole I.E.if it was a property worth £450,000 then) (£125,000 X 0 .02) + (£200,000 X0.05) + (£450,000 X 0 .03)
What is the typical annual management charge for tracker funds
0.5%
What are the investor return objectives
Capital preservation – risk adverse who minimise risk of loss, they want return equal to inflation.
Capital appreciation - long-term who want growth from capital gains.
Current income - investors focusing on income rather than capital gains
Total return – long-term who wants growth of value from capital gains and income
What is the time horizon
The time horizon is the importance of capital preservation in relation to the time until an event, the shorter the time makes the higher importance.
How much should a rainy day fund be worth
6 - 9 months of expenditure in liquid cash deposits
Benefit offshore bonds in relation to onshore
They are not subject to UK tax and so should grow more in theory, also due to them being held in another country you can chose when to be taxed on them by bringing them over. This is a trade off for usually a higher charge
What can MWR be used to measure
It can measure single funds however because it is effected by cash-flows it is not a good measure of portfolio as cash-flows are often of no influence from the fund manager only the client
When do you pay SD or SDRT
This type of tax is paid when you purchase shares, if done online you pay SDRT as it’s operated through CREST and SD is paid any other time.
SDRT Is sounded to nearest 0.01p where as SD is rounded to £5
Which is subjective and which is fact
- risk tolerance
-capacity for loss
Risk is subjective
Capacity for loss is fact
How do the interest rates move when more people decided I invest in short term securities
The more people invest, the lower the rate of short term interest becomes
What product can trade at a discount/premium and what would it be based off
Investment trusts can trade at premiums or discounts depending on the share price per share in relation to its NAV per share. If share price is lower than NAV then it’s trading at a discount
What is real asset protection
This is when an investments value moves in line with inflation, not necessarily beating it
What is an overlay strategy to asset allocation
Overlay strategy is to hold a core structure portfolio then use derivatives to alter the currency and market exposures
Which of the following use both nonsystematic and systematic risk
Modern portfolio theory, capital asset pricing model, arbitrage pricing theory
Arbitrage pricing theory
Explain deflation and it’s effects
Deflation occurs when the supply of goods rises faster than the supply of money, leading to increased purchasing power of money and a drop in price of goods. Because of this consumers buy less as they expect more purchase power in the future.
What is stochastic modelling
This is when maths is used to generate lots of outcomes, then combine the outcomes to create a range of portfolios and their probabilities
What is the price given for gilts in the Financial Times
Clean price
What is a structured product usually made out of
Zero-coupon bond and a call option
If someone’s portfolio is 40% less volatile than the market what would the portfolios beta be
0.6
According to the modern portfolio theory what should an investment portfolio be
Compromised of diverse and imperfectly correlated assets classes
What happens to the dividends of an offshore fund which invests in equities
The dividend it receives will have to pay a non-reclaimable withholding tax
Why invest in REIT’s?
They are a liquid way of investing in property
By stakeholder standards what Should the investment in an ISA be
The investment into an ISA cannot have a higher minimum deposit than £20
what is an efficient method to avoid capital gains
You can transfer shares to a partner who can then in cash using the CGT allowance
 What methods does modern portfolio theory use to form it’s portfolios
Optimisation, using the efficient frontier
What does standard deviation denote
Star deviation is the measure of volatility
How Can index linked government securities guarantee inflation proofing
Holding them to redemption
What are the taxation properties of an enterprise investment scheme
EIS Allow for a 30% income tax relief up to £2 million investment, this can also be carried back for a previous tax year. CGT can also be deferred if the gains reinvested
What is absolute return on a fund
When a fund achieves a positive return in all market conditions
If a product has 101% of the value of its investment life cover what type of policy is it likely to be
Investment bond
Does the holding period return equation take income into account
Yes
When doing interest/redemption yield should have the rates be fractional decimalised or standardised
Decimalised
What would a negative information ratio suggest
A better return would have been achieved bye matching the index using a tracker
If a guilt is bought within a specific amount of days until the interest payment date then what happens and what is the amount of days that it would have to be bought within
7 days
The purchaser pays the dirty price which is the claim price minus the effects of interest which would’ve been paid and for this they do not receive the interest as the seller still gets all the interest
Causes of interest rate movements
Economic cycle: strong demand and economic activity increase interest rates
Government fiscal policy: government issue gilts to fund deficit, tends to push medium to long gilts yields up
Government monetary policy: quantitive easing reduces short-term rates and government purchase of long dated bonds impacts long-term rates
Inflation expectation: long-term expected to increase if inflation is expected to increase as well
Uncertainty: times of insurgency investors prefer short securities decreasing short-term interest rates

What protection do unit trusts have
Give me trust for three layers of protection; the trustees of the unit trust, the financial services compensation scheme and the complaints and arbitration procedures
Name the low risk fixed interest securities and the low risk equities
Low risk fixed interest securities; guilt, global gov bond, investment grade corporation bonds
Low risk equities; equity income funds, income and growth funds
Name the high risk fixed interest securities and equities
High-risk fixed interest securities; emerging market bond, ideal bond, tactical bond
High risk equities; alpha funds, smaller company funds, specialist funds
According to behavioural finance ferry how much more grief does a lost cause than the joy of again
Double
Using standard deviation as an indicator of volatility what should be the distribution level for an acceptable probability of return
Normally distributed
Is the taxation on the underlying funds of an investment bond more or less than a trust would normally be subject to
More
What is Sharpe ratio used to measure
The risk of an investment
How often is the interest on a bond typically paid
Half yearly
In what order is preference shares ordinary shares and existing credit paid in the event of liquidation
Credit then preference shares then ordinary
What is government spending
Government spending is a method of monetary policy, higher net government spend stimulates the economy
What happens to the price of fixed interest securities in a booming economy
In a booming economy the price of fixed interest securities will fall as they appear less profitable due to a positive economy
What are the current in the capital accounts
The current account consists of transactions, while the capital account records investments movements
Name the limitations of the efficient frontier model
-It assumes standard deviation is the correct measure of risk
-It’s assumes the underlying portfolio in each assets class index funds
-It doesn’t include transactional cost
Name the assumptions of the capital asset pricing model
All info is free and available to all, every investor has the same holding period and that investors are rational and risk adverse
How do you obtain NNS and I certificate
NS and I are not currently available except for existing customers who can renew their investment
What would cause a flat yield curve
Investors demand higher returns for longer redemption periods which creates a normal yield curve, a flat curve would indicate that there are no expected radical changes to inflation and interest rates
What Investment curve would there be if investors believed that long-term interest rates would fall due to the belief that short-term interest rates were going to fall
An inverse curve because the long-term interest rates will fall whereas the short-term may not
What is the name of the lease agreement was landlords use commonly
Landlords properties for a fixed period of around 6 to 12 months, these are called assured short hold tenancy agreement
What is the formula for rental yield
Rental yield equals gross rent minus expenses divided by market cost plus purchase cost times by 100
Does net asset value Include long-term debt
Yes
How does monetary policies use of interest rates stimulate the economy
Monetary policy uses interest rates to influence money supply, if low inflation rates then they will lower the interest rates so that the borrowing costs are cheaper, this leads to more money for the public which then creates more consumer spending and thus stimulating the economy increasing inflation
Is capital asset pricing model a multi factor model
No it’s single factor
What type of bond fund pays interest without a taxdeduction
Corporate bond fund
How are onshore investment bonds taxed
Onshore investment bonds are deemed to have paid basic rate tax so additional 20% for higher rate and 25% for additional rate tax is due on capital gains
How are offshore investment bonds taxed
Offshore investment bonds have capital gains taxed as income at investors highest rate
What are the tax positions of venture capital trust, seed enterprise investment schemes, enterprise investment schemes
VCT have tax relief at 30% up to £200,000
SEIS half tax relief at 50% up to £100,000
EIS have tax relief of 30% up to £2 million
How long after the acquisition of SAYEO share incentive plan shares will they be eligible for investment into an ISA
90 days
What is the difference between a pension annuity and a purchase life annuity
Pension duties are taxed in full as income whereas purchase light annuities have a capital and income element the capital is tax-free
What is arbitrage
Arbitrage is the practice of selling and buying securities across different markets to take advantage of differing prices of the same security
What strategy does someone who uses arbitrate use
Relative value
What are the characteristics of securities
Fixed interest securities are characterised as security of income, with varying degree of exposure to capital gains and losses. Securities include bonds, gilts, loan stock.
What is the most important part of the clients fact find process
To understand the clients goals and expectations
What is the limitations of risk in any finance theory framework
The discussion of risk in any finance framework is tricky as it is a psychological factor that isn’t easily quantifiable, hence is not very helpful when helping clients to come to terms with the actuality of risk-return trade-off
What is a multi-manager fund
Multi managed fund has the manager of the fund research and select the funds, so advisors who don’t want to do the research can use these
How are fixed interest investments taxed within pension schemes
Pension schemes of the tax relief on contributions, fixed interest investments held in pensions are not taxed
What are investments designed to much future liabilities
Defined benefit pension is (final salary scheme), life assurance, general insurance
What is the most important aim for short-term time horizons
Capital preservation
How do withdrawals work on a junior cash ISA
They can be made at any time without the loss of tax relief
What is the FTSE fledgling
These are companies that are too small to be in the FTSE all share
What are the two types of value index related to FTSE
Valuated and price weighted
What is the Dow Jones made up of
30 blue-chip companies
How do people usually invest into commodities
Usually done through commodity funds or in companies to produce commodities or exchange traded commodities
What are exchange traded notes
ETNs Debt instruments issued by large financial institutions (similar to bond but without the interest payments)
What do investment trusts need in order to be approved by the HMRC
Retain less than 15% gross income
What are warrants
Warrants are not a method of gearing, they are the right to buy shares at a fixed price at a predetermined date, they can be bought or sold and are high risk
What are the benefits of with profits funds
With profits funds of exposure to equity markets for those risk adverse as well as ownership rights in the life office
What are the benefits of offshore investment bonds as opposed to offshore funds
It is easier to place an offshore investment bond into trust instead of an offshore fund. Offshore bonds have a 5% tax deferral withdraw facility
What tools can portfolio managers use to achieve better results
They can exercise asset allocation, stock selection, risk and market timing
What are the principal factors affecting investment strategy found in the investment policy statement
Cash flow requirements, legal constraints, nature of liability, investment objectives, attitude to risk, taxation.
What are synthetic and physical passive funds
A synthetic passive fund is the exchange traded fund that uses derivatives to match the index. A physical passive fund is an exchange traded fund that holds stocks to replicate the index
What is a key issue for a discretionary managed service
Tax management is a key issue for discretionary manage service, if they are held in different investment vehicles the assets that are held directly rather than in a tax wrapper could trigger CGT
What are the main UK FTSE index is and FTSE AIM indexes
Allshare, 100, 250, 350. All FTSE are arithmetically waited and the 100 is updated consistently throughout the day
50, 100, I’ll share, all share super sector
What is a drawback of an index being capitalisation weighted
The few large companies can have a substantial effect across the index
Alpha as part of the return that cannot be explained by overall market movements
Just learn this
What is the performance evaluation And performance measurement
Performance evaluation measures whether an investment has added value to the portfolio and how it is added the value. Before Woods valuation is concerned with the performance of the manager and and how they have added value, not if it has met the expectations of a client.
Performance measure is the measure of the return of the portfolio
Which is cheaper to invest in investment trusts or unit trusts
It is cheaper to invest in investment trust because they can be discounted, they can also provide higher returns because of this
Is the game on encashment of a guaranteed growth bond grossed up
No
What are the conditions for an endowment to be a qualifying policy
Premiums paid in any year may not be double paid in any other year, premiums must be paid at least annually, the policy term must be at least 10 years and the minimum life cover is 75% of the total premiums paid, no one premium can be more than 1/8 of the total premiums payable over the term of the policy, upon selling the policy if the client is the original owner then there is no CGT
How are the dividends from the non-ring fenced proportion of a REIT paid
The dividends are paid gross
What is the use of information ratio
The information ratio is used to assess risk adjusted performance
Why is past performance essential to a managers fund measurements
Past performance essential to measuring a fund managers performance and then rewarding where appropriate
What are the characteristics of treasury bills
Treasury bills are managed by the debt management office which is an agency of HM Treasury, minimum purchase of £500,000, no interest, acts a bit like a bond
What are the characteristics of a certificate of deposit
Fixed rate of interest and fixed term majority so you cannot withdraw it any sooner, can be traded but due to the ability to trade the rates are slightly lower than the ordinary deposits
Characteristics of commercial bills
Commercial bills or death instruments issued by companies with high credit ratings to fund the daily cash flows. They operate like a Treasury bill but less liquid, because of this they are typically higher yield then Treasury bills
Is the interest on an NS and I taxable
Yes even though the interest on an NS and I is paid gross it is still taxable
What is the downfall of investment ratios
Accounting policies often change over time making any investment ratio comparison between companies misleading, however, they are useful for tracking some trends. Net asset value is quite useful
Stamp duty land tax funds
Commercial property: Has Studley land tax of 0% up to £150,000 then 150,000 to 250,000 has 2% anything 250,000 higher is 5%
Residential stamp duty land tax: 0 to 125 = 0%, 125 to 250 = 2%, 250 to 925 = 5%, 925 to 1,500,000 equals 10% anything over 1,500,000 equals 12%
First time buyers: 0 to 300,000 equals 0%, 300,000 to 500,000 = 5%, However no relief is offered on first time purchases over 500,000
BTL is normal plus 3% surge charge
What is fiscal policy
Fiscal policy is using taxation to adjust levels of spending, higher tax equals less spend to be done in a booming economy or opposite in a recession
What is quantitive easing
Wants to be using is the injection of money into the market, the more liquidity is good, so they buy government bonds and corporation bonds
What resultant effect will the drop in the value of the pound have on a companies share price which is an exporter from the UK
If the value of the pound falls the cost of UK export goods is less, which results in high demand for the product, hence share prices may rise
What Does the efficient market hypothesis recommend
Tracker funds as everything is reacted to everything so there’s no way to beat the index
What is optimisation
Optimisation is where a computerised model tracks the index it is following
When do the shares of an enterprise investment scheme become free of inheritance tax
If held for two years then they qualify for hundred percent business relief
What is the loophole associated with a JISA
A junior ISA is open for anyone under age 18, they can have £9000 per annum tax relief in this allowance, This doesn’t affect the £20,000 allowance which is allowed on any adult cash ISA, I can have a cash ISA from 816 onwards. So from ages 16 to 17 The child can have a allowance of £29,000 and hold both the junior ISA and the adult cash ISA
At what age is a junior ISA taken over from the parents by the child
Age 16
What is being in an open position and what is marking the market
When making an initial financial futures trade, a client opens deposition on the derivative market, so they are then referred to as being in an open position. During this open position the financial factors are valued daily, this is known as marking the market
What Frequency showed the ongoing client reviews occur
This will be stated in the clients agreement this has been agreed on by the client advisor however is typically six months after the investment and then yearly onwards
How many risk profiles and how do I determine which is the appropriate one
There are seven profiles and you can determine which is which through the amount of percent held in equity this ranges from 30% to 75% to be with a five or 10% increase between each just kind of guess
What is the average weight is majority of the short-term money market instrument
60 days
What does a higher price earnings ratio represent
Generally means of the company is expected to do well and grill
What is disinflation
This inflation is the decrease in the rate of inflation, however, is it still increasing and so the cost of goods and services are still increasing
 What is the duration of a bond
A bond duration is the sensitivity to the interest rate changes.
I.E.a bond with duration for will have a gain of 4% for everyone percent fall in interest rates as they are adversely correlated
Who holds the registry of the unit trust holders
This is held by the trustees and can be closed for up to 30 days a year
What is the hurdle rate
Hurdle rate is specific to split capital investment trusts, it is the annual growth rate the investment must achieve to pay the current purchase price, the predetermined redemption value or the value that wind up
What are the main US stock indexes
The Dow Jones the standard and poor and the NASDAQ
What features should be locked out for when buying a buy to let property
Availability of tenants, location and age.
Void periods are not a thing to look out for they are just a drawback
What is a bit of a spread
Bit of the spread is the difference between the buying and selling price. This is a combination of the dealing costs, underline market and the initial charges
When do managers have to give warning to investors are using an investment trust
When investing in an iced tea which uses gearing as a strategy of investment directly or indirectly
Which policy generates no taxable income
Investment bond
The writer of an option received a premium from a buyer but what does the writer have to pay
The right of Pisa commission And a margin payment fee
What is being overweight or underweight in asset allocation
This is when you do not match the benchmark exactly and I either overweight by picking higher or underweight by picking lower this is not necessarily a bad thing it’s just a perspective
