CEMAP 1 - ITFSE&P Flashcards
What % of Company’s share capital must be in public hands to have full listing on main London Stock Exchange?
a) 10%.
b) 25%.
c) 33%.
d) 49%.
B - 25%
7
Buy-to-let property has the advantage of liquidity.
Question 1 options:
a) True
b) False
B - False
7
Bow Ltd has just issued three free shares for every one share a shareholder owns. This is referred to as a:
Question 2 options:
a)
proportional share issue.
b)
dividend share issue.
c)
scrip issue.
d)
rights issue.
C - Scrip Issue
7
A share’s price/earnings ratio is:
Question 3 options:
a)
the share’s dividend as a percentage of the share price.
b)
the number of times the dividend is covered by the company’s profits.
c)
the share price divided by the earnings per share.
d)
the company’s net profit divided by the number of shares.
C - the share price divided by the earnings per share.
7
A preference share:
Question 4 options:
a)
ranks ahead of ordinary shares for repayment if the company is wound up.
b)
receives interest payments rather than dividends.
c)
always carries voting rights.
d)
is guaranteed to receive a dividend every year.
A - ranks ahead of ordinary shares for repayment if the company is wound up.
7
Market capitalisation is a key factor when analysing shares. It represents the:
a)
annual profit figure shown in the company’s last annual accounts.
b)
value of the company’s assets and reserves.
c)
number of shares the company has issued.
d)
current share value multiplied by the number of shares issued.
D - current share value multiplied by the number of shares issued.
7
Certificates of deposit:
a)
are bearer securities.
b)
pay interest monthly.
c)
allow penalty-free access at any time.
d)
have a minimum 12-month term.
A - are bearer securities
7
Today is the ex-dividend date for Acme Ltd shares. The share price is most likely to:
Question 8 options:
a)
remain stable.
b)
increase slightly.
c)
become more volatile.
d)
decrease slightly.
D - decrease slightly.
7
Karen is a higher-rate taxpayer who owns a buy-to-let flat. What is the position with tax relief on her mortgage? She will:
a)
receive a basic-rate income tax credit.
b)
receive tax relief at her marginal income tax rate.
c)
not qualify for any tax relief.
d)
receive higher-rate tax relief.
A - receive a basic-rate income tax credit
The FTSE 350 Index includes companies listed on the London Stock Exchange. It comprises:
Question 10 options:
a)
the largest 350 companies by capitalisation.
b)
the largest 350 companies by capitalisation outside the FTSE 100.
c)
the largest 350 companies by capitalisation outside the FTSE 100 and 250 indices.
d)
350 smaller companies who do not meet the AIM criteria.
A - the largest 350 companies by capitalisation.
7
Which function is responsible for overseeing the operation of an open-ended investment company and safeguarding investor interests?
Question 1 options:
a)
The manager.
b)
The authorised corporate director.
c)
The depositary.
d)
The trustee.
c)
The depositary.
8
Jason wishes to cash in his unit trust holding. Which unit price will he receive in normal market conditions?
Question 2 options:
a)
Cancellation price.
b)
Creation price.
c)
Offer price.
d)
Bid price.
d)
Bid price.
8
A friendly society tax-exempt savings plan:
Question 3 options:
a)
is offered by proprietary organisations.
b)
offers similar taxation benefits to endowment policies.
c)
has a term between 10 and 25 years.
d)
has a maximum annual savings limit of £270.
d)
has a maximum annual savings limit of £270.
8
What percentage of a unit trust’s fund must be in cash or fixed-interest investments for distributions to be treated as interest payments?
Question 4 options:
a)
At least 50%.
b)
Up to 60%.
c)
More than 60%.
d)
At least 75%.
c)
More than 60%.
The aim of investment diversification is to:
Question 5 options:
a)
increase income from investments.
b)
reduce investment risk.
c)
increase investment performance.
d)
reduce investment administration and documentation.
b)
reduce investment risk.
8
In relation to investment trusts, which of the following is true?
Question 6 options:
a)
The trust deed outlines the trust’s investment objectives.
b)
The trust can borrow for investment purposes.
c)
The net asset value is the price shares are trading at.
d)
Shares trading at a premium can be bought at below their net asset value.
b)
The trust can borrow for investment purposes.
8
Which of the following is true in relation to unit trusts?
Question 7 options:
a)
The trustee decides on appropriate investments for the trust.
b)
The manager can create units to meet demand.
c)
The manager is responsible for holding and controlling the fund’s assets.
d)
Distribution unit trusts pay regular capital amounts to investors from profits.
b)
The manager can create units to meet demand.
8
Alan has an investment that guarantees a specific return over a five-year period, but some of his initial capital could be lost if the FTSE 100 fails to achieve a certain level by the end of the term. His investment is a:
a)
structured capital‑at‑risk product.
b)
structured derivative product.
c)
non-structured capital‑at‑risk product.
d)
structured deposit.
a)
structured capital‑at‑risk product.
8
Which of the following is false in relation to qualifying life assurance policies?
Question 9 options:
a)
The death benefit must be at least 101% of the bid value of the policy.
b)
Premiums cannot vary beyond specified limits.
c)
Premiums must be payable at least annually.
d)
They must have a minimum term of 10 years.
a)
The death benefit must be at least 101% of the bid value of the policy.
8
Which of the following is true in relation to real estate investment trusts?
Question 10 options:
a)
At least 80% of the profit must result from property rentals.
b)
At least 90% of profits must be distributed to shareholders.
c)
They cannot be held in an ISA.
d)
Corporation tax is payable on profits from property rentals.
b)
At least 90% of profits must be distributed to shareholders.
8
Which of the following is untrue regarding ISAs?
Question 1 options:
a)
Subject to the annual contribution limit, it is possible to invest in different ISAs in the same year.
b)
Shares from an all‑employee savings‑related share option scheme can be held in an ISA.
c)
The minimum age for a cash ISA is 18.
d)
It is not possible to have a joint ISA.
c)
The minimum age for a cash ISA is 18.
9
Jamal is contributing to a Help-to-Buy ISA and is now thinking of starting a Lifetime ISA. Which of the following is true?
Question 2 options:
a)
He cannot invest in both types of ISA.
b)
He can invest in both types of ISA and receive the government bonus for both.
c)
He can invest in both types of ISA but cannot claim any government bonus.
d)
He can invest in both types of ISA and receive the government bonus from one of them.
d)
He can invest in both types of ISA and receive the government bonus from one of them.
9
Sashin wishes to invest into a venture capital trust (VCT). Which one of the following statements is false?
Question 3 options:
a)
VCT gains are exempt from capital gains tax.
b)
VCT dividends are tax free.
c)
Income tax relief is available at 30%.
d)
The maximum investment for tax relief is £500,000.
d)
The maximum investment for tax relief is £500,000.
-Tax Relief VCT is £250,000
9
With an Enterprise Investment Scheme (EIS), which of the following are true?
Question 4 options:
a)
Gains are exempt from capital gains tax if shares are held for five years.
b)
Tax relief is available at the investor’s marginal rate.
c)
Tax relief is available on up to £1m investment per tax year.
d)
Investment is made through a collective investment scheme.
c)
Tax relief is available on up to £1m investment per tax year.
9
Aisling, aged 32, has a Lifetime ISA fund worth £3,600, having invested £3,000. She is now in some financial difficulties and needs to withdraw the funds. How much would Aisling receive if she did cash in the fund?
Question 5 options:
a)
£2,250.
b)
£2,700.
c)
£3,000.
d)
£3,600.
b)
£2,700.
-there is a 25% penalty applied if funds are withdrawn for reasons other than the purchase of a first home, the holder reaching age 60 or the holder suffering a terminal illness. £3,600 x 25% = £900. £3,600 - £900 = £2,700.
9
Which of the following cannot be held in a stocks and shares ISA?
Question 6 options:
a)
UK open ended investment companies.
b)
Gilts.
c)
UK investment trusts.
d)
Residential property.
d)
Residential property.
9
Janine is 35 and has a Help-to-Buy ISA. She is now about to buy her first property. In total she has been informed that her ISA will provide £3,600 towards the purchase. This means her current fund, without including the government bonus, is worth:
Question 7 options:
a)
£2,400.
b)
£2,880.
c)
£3,000.
d)
£4,000, because she will not qualify for a bonus due to her age.
b)
£2,880.
-The government bonus is 25% of the fund. £2,880 x 25% = £720. £2,880 + £7,20 = £3,600.
9
At what minimum age can funds be taken from a Child Trust Fund?
Question 8 options:
a)
At any age.
b)
16.
c)
18.
d)
21.
c)
18.
9
Mansour has a flexible cash ISA, having invested £15,000 of the £20,000 annual limit in July. The following December he withdrew £8,000 in an emergency to replace his car. How much, if anything, could Mansour invest in the ISA before the end of the tax year?
Question 9 options:
a)
He cannot make a further investment in the tax year.
b)
£5,000.
c)
£8,000.
d)
£13,000.
d)
£13,000.
-Mansour can invest £20,000 in the tax year. A FLEXIBLE ISA allows him to withdraw cash and replace it until the end of the tax year. He had £5,000 of his annual allowance left anyway, and could also replace the £8,000, giving a total of £13,000.
9
When Adrian died, he had £140,000 invested in a stocks and shares ISA. What is the position with the ISA?
Question 10 options:
a)
Adrian’s executor can make a further investment in the ISA on Adrian’s behalf to top up the current year’s subscription.
b)
The ISA trustees have discretion about how to distribute the fund.
c)
Adrian’s ISA must cease and the proceeds become part of his estate.
d)
Adrian’s spouse or civil partner can make an additional subscription of up to £140,000.
d)
Adrian’s spouse or civil partner can make an additional subscription of up to £140,000.
9
Which statement best describes the uncrystallised funds pension lump sum option on a personal pension?
Question 1 options:
a)
Each withdrawal is taxed as income in the owner’s hands.
b)
Each withdrawal will be tax free.
c)
The whole fund must be taken, with 25% as a tax-free lump sum.
d)
25% of each withdrawal is tax free, with the balance taxed as income.
d)
25% of each withdrawal is tax free, with the balance taxed as income.
10
Caroline is 38 and earns £25,000 a year as a department manager for a large firm. What is the maximum contribution that could be paid into her personal pension to give her maximum tax relief and avoid any tax penalties?
Question 2 options:
a)
£25,000 from Caroline only.
b)
Up to £25,000 between Caroline and her employer.
c)
£25,000 from Caroline and £15,000 from her employer.
d)
£40,000 from Caroline only.
c)
£25,000 from Caroline and £15,000 from her employer.
-Caroline can pay in an amount up to her salary, and her employer can top it up to the annual allowance amount.
10
Ali has been a member of his company’s 1/50th defined-benefit pension for 20 years and is about to retire. His pensionable salary is £30,000. What will Ali’s pension be?
Question 3 options:
a)
£10,000.
b)
£12,000.
c)
£15,000.
d)
£30,000.
b)
£12,000.
-1/50th of £30k x 20years
10
Alisha is just in the higher-rate tax band. She has a personal pension plan valued at £40,000 and wants to take all of it as one lump sum on her sixtieth birthday next month. How much of the withdrawal will be tax free?
Question 4 options:
a)
It will all be taxable.
b)
£30,000.
c)
£20,000.
d)
£10,000.
d)
£10,000.
-25% of the pension can be taken as a tax-free lump sum (£40,000 x 25% = £10,000).
Which method of providing a personal pension income is free from investment risk?
Question 5 options:
a)
Taking the 25% pension commencement lump sum and leaving the balance in the fund.
b)
Taking regular withdrawals using the uncrystallised funds pension lump sum option.
c)
Flexi-access drawdown.
d)
Purchasing an annuity.
d)
Purchasing an annuity.
10
In order to qualify for auto-enrolment, an employee must:
Question 6 options:
a)
earn more than £5,000.
b)
opt-in to the scheme.
c)
be aged at least 22.
d)
be under age 60.
c)
be aged at least 22.
10
Which type of pension scheme is most likely to allow an individual to hold a direct investment in commercial property?
a)
A self-invested personal pension.
b)
A defined-contribution occupational pension.
c)
A stakeholder pension.
d)
A personal pension.
a)
A self-invested personal pension.
10
The ‘direct pay’ arrangement is where a personal scheme member pays the contributions directly to the pension provider.
Question 8 options:
a) True
b) False
b) False
-It is where the employer collects the employee’s contribution from their pay and passes it on to the pension provider.
10
Question 9 (1 point)
Which of the following is true regarding the NEST scheme?
Question 9 options:
a)
It cannot run alongside an existing occupational scheme.
b)
The minimum contribution per employee is 10% of earnings.
c)
Benefits can be taken from age 55.
d)
Contributions can only be made into the default fund.
c)
Benefits can be taken from age 55.
10
When does the Money Purchase Annual Allowance apply to pension contributions? If the plan holder:
Question 10 options:
a)
uses the fund to purchase an annuity.
b)
earns more than the income threshold.
c)
takes benefits through the uncrystallised funds pension lump sum option.
d)
takes benefits before the scheme retirement date.
c)
takes benefits through the uncrystallised funds pension lump sum option.
10
A single parent wants to provide an income for his two children in the event of his death, payable until the youngest child is 21. What type of life assurance policy would suit his requirements and cost the least?
Question 1 options:
a)
Low-cost endowment.
b)
Family income benefit.
c)
Whole-of-life assurance.
d)
Level term assurance.
b)
Family income benefit.
11
Which of the following is true of a unitised with-profits endowment?
Question 2 options:
a)
The full unit value is payable on surrender of the policy.
b)
Unit values cannot fall.
c)
Only terminal bonuses are added.
d)
It cannot be assigned to a lender.
b)
Unit values cannot fall.
11
The most appropriate life assurance policy to protect a repayment mortgage would be a form of:
Question 3 options:
a)
decreasing term assurance.
b)
convertible term assurance.
c)
level term assurance.
d)
increasing term assurance.
a)
decreasing term assurance.
11
In strong stock market conditions, which type of mortgage-linked endowment is most likely to allow early repayment of the mortgage?
Question 4 options:
a)
Low-cost with profits.
b)
Non-profits.
c)
With-profits.
d)
Unit-linked.
d)
Unit-linked.
11
During the lifetime of a full with-profits endowment, the death benefit should:
Question 5 options:
a)
fluctuate.
b)
decrease.
c)
stay level.
d)
increase.
d)
increase.
11
Jason has a flexible whole-of-life assurance policy on a maximum cover basis. This means that Jason’s:
Question 6 options:
a)
plan will accumulate a higher investment value than a minimum cover policy.
b)
premiums will be higher than those of a balanced cover policy.
c)
premiums are likely to increase after ten years.
d)
sum assured will increase after ten years.
c)
premiums are likely to increase after ten years.
11
Jim has a with-profits whole-of-life plan, and Jenny has a low-cost with-profits whole-of-life plan, both offering the same death benefit. The main difference in the two plans is that:
Question 7 options:
a)
The value of units on Jenny’s plan will be lower.
b)
The fixed death benefit on Jim’s plan will be lower.
c)
Jenny’s policy will not benefit from regular bonuses.
d)
Part of the death benefit on Jenny’s policy is on a reducing basis.
d)
Part of the death benefit on Jenny’s policy is on a reducing basis.
11
What is the normal maximum age for exercising the renewal option on a renewable term assurance policy?
Question 8 options:
a)
50.
b)
55.
c)
60.
d)
65.
d)
65.
11
Charu and Rajeev have written wills leaving everything to the survivor, and on their death the estate will pass to their children. They wish to provide a lump sum for the children to be able to settle any inheritance tax (IHT) liability on their inheritance. What life assurance arrangement would achieve their objective?
Question 9 options:
a)
A joint-life second-death gift inter vivos policy for the potential IHT liability, in trust.
b)
A joint-life second-death whole-of-life plan for the potential IHT liability, in trust.
c)
Two single whole-of-life plans, in trust, each for 50% of the potential IHT liability.
d)
A joint-life first-death whole-of-life plan for the potential IHT liability, in trust.
b)
A joint-life second-death whole-of-life plan for the potential IHT liability, in trust.
11
What add-on benefit will ensure a life assurance policy will continue to provide cover when premiums are suspended due to the policyholder’s illness preventing them from working?
Question 10 options:
a)
Temporary disability cover.
b)
Terminal illness benefit.
c)
Income protection benefit.
d)
Waiver of premium benefit.
d)
Waiver of premium benefit.
11
Sean has been claiming on his income protection insurance policy for six months and has now been cleared to return to work on a part-time basis on a lower salary. What policy feature would solve his concern about the reduced income?
Question 1 options:
a)
A shorter deferred period.
b)
Suspension of premiums during a claim.
c)
Proportionate (pro-rata) benefit.
d)
Increasing benefit.
c)
Proportionate (pro-rata) benefit.
12
Which of the following is the same for both accident, sickness and unemployment insurance and income protection insurance?
Question 2 options:
a)
Length of the policy term.
b)
Deferred period.
c)
Deduction of state benefits from payments.
d)
Taxation of benefits.
d)
Taxation of benefits.
12
In relation to insurance for commercial purposes, pecuniary loss is a loss resulting from:
Question 3 options:
a)
criminal damage of vandalism.
b)
a defaulting creditor.
c)
an interruption to a business’s operation.
d)
injury, illness or death of an employee.
b)
a defaulting creditor.
12
Billie insured her house contents for £30,000 and accepted a £100 excess. Later that year she made a claim for £5,000 as a result of local flooding. The insurer has written to her, stating that the true value of her contents should have been £40,000 and that they are disputing her claim. How much is Billie likely to receive in settlement of her claim?
Question 4 options:
a)
The insurer will reject her claim as she was underinsured.
b)
Billie is likely to receive £3,650.
c)
Billie is likely to receive £3,750.
d)
The insurer is likely to pay the claim in full, as the underinsurance was unintentional.
b)
Billie is likely to receive £3,650.
-30,000 / 40,000 = 0.75 (75%)
(75%) 0.75 x 5,000 = 3750
- 100 excess
12
Which of the following statements is true in relation to income protection insurance (IPI)?
Question 5 options:
a)
It is the same as an ASU policy, but without redundancy cover.
b)
A tax-free income benefit will be payable after a specified period of incapacity.
c)
Benefits are paid for a maximum of 12 or 24 months.
d)
IPI provides a surrender value for early surrender.
b)
A tax-free income benefit will be payable after a specified period of incapacity.
12
Which of the following is true in relation to long-term care insurance?
Question 6 options:
a)
Inability to carry out four or more activities of daily living is required for a successful claim.
b)
Long-term care benefits are only payable when the insured is in a care home.
c)
Any annuity payments from a long-term care plan are tax free.
d)
Inability to move between rooms would be an activity of daily living for a claim.
d)
Inability to move between rooms would be an activity of daily living for a claim.
12
Payment protection insurance:
Question 7 options:
a)
provides benefits in the event of death, accident, sickness or unemployment.
b)
is not covered by the Financial Services Compensation Scheme.
c)
can cover the applicant’s combined borrowing.
d)
pay outs are typically limited to 12 months.
d)
pay outs are typically limited to 12 months.
12
The Road Traffic Act 1988 requires all vehicles to have at least:
Question 8 options:
a)
third-party, fire and theft insurance.
b)
third-party insurance.
c)
comprehensive insurance.
d)
Road Traffic Act insurance.
b)
third-party insurance.
12
Which of the following would be least likely to be covered on a critical illness assurance policy?
Question 9 options:
a)
Angina.
b)
Heart attack.
c)
Kidney failure.
d)
Breast cancer.
a)
Angina.
12
Andrea has private medical insurance, paid for by her employer as part of her employment package. Which of the following would not apply?
Question 10 options:
a)
Insurance premium tax on the premiums.
b)
An income tax liability for Andrea on payments made in the event of a claim.
c)
Premiums qualify as business expenses for her employer.
d)
An income tax liability for Andrea on the value of the premiums.
b)
An income tax liability for Andrea on payments made in the event of a claim.
12
Equity release is regulated by:
Question 1 options:
a)
the Financial Conduct Authority only.
b)
the Equity Release Council only.
c)
the Prudential Regulation Authority only.
d)
the Financial Conduct Authority and the Equity Release Council.
a)
the Financial Conduct Authority only.
13
Question 2 (1 point)
Which of the following is incorrect for a discounted-rate mortgage?
Question 2 options:
a)
The monthly mortgage payment can vary.
b)
The payable rate is directly linked to the Bank of England base rate.
c)
The discount is from the lender’s standard variable rate.
d)
There is usually a penalty if the loan is repaid before a specified date.
b)
The payable rate is directly linked to the Bank of England base rate.
13
What type of mortgage product interest rate can vary, but cannot rise above a pre-set limit?
Question 3 options:
a)
Capped rate.
b)
Fixed rate.
c)
Discounted rate.
d)
Base-rate tracker.
a)
Capped rate.
13
Barbara, aged 70, has heard she can use her property to provide some extra cash as and when she needs it. She would like to leave as much of the property’s value to her two children as possible. Which arrangement would best satisfy her needs?
Question 4 options:
a)
A drawdown lifetime mortgage.
b)
A home income plan.
c)
A home reversion plan.
d)
A lifetime mortgage.
a)
A drawdown lifetime mortgage.
-She does not need a lump sum (home reversion plan would provide lump sum).
-A Home reversion plan would also mean selling part of her property to lender.
13
