CeMAP 1 Unit 1 Mock

Question 1

The main advantage of writing a life assurance policy in trust is to:
A. create a tax-exempt fund.
B. ensure the policy obtains qualifying status.
C. increase personal allowances.
D. ‘ring-fence’ the proceeds outside the individual’s estate.

Answer 1

D Unit 1; 6.1.2

Question 2

Why would an investor be interested in holding warrants issued by a company?

A. If the price of the shares has increased at the time a warrant is exercisable, the holder will make a profit on their sale.
B. If the value of the connected shares falls, the investor can claim a loss that can be offset against capital gains made elsewhere.
C. Investors can receive dividends without having to make any capital outlay.
D. Investors can receive shares without having to make any capital outlay.

Answer 2

A Unit 1; 3.4

Question 3

Walter and Winnie own their house on a joint tenants basis. If Walter dies:

A. his share of the property will pass automatically to Winnie.
B. his share will pass to whoever is nominated in his will.
C. Winnie will need to purchase Walter’s share of the property.
D. Winnie will own 50% of the property but retain an interest in the other 50%.

Answer 3

A Unit 1; 6 4.1

Question 4

Which one of the following is true in relation to the manager of an investment trust?

A. He can borrow to improve capital and income growth.
B. He can cancel units if the fund value falls sharply.
C. He can issue more units or repurchase units according to demand. D. He cannot borrow funds.

Answer 4

A Unit 1; 3.2.2

Question 5

What is the youngest age at which a person resident in the UK can be liable for income tax?
A. From birth.
B. Age 16.
C. The age at which they start work.
D. Age 18.

Answer 5

A Unit 1; 1.3.3.2

Question 6

In order to be acceptable as a medium of exchange, money must have all except which one of the following?

A. It must be divisible into small units.
B. It must be free from the effects of inflation.
C. It must be generally acceptable to all parties in all transactions.
D. It must be sufficient in quantity.

Answer 6

B Unit 1; 1.1

Question 7

Jeremy has capital losses that exceed gains made in the current tax year. What option, if any, does he have?

A. Carry them back to last year.
B. Carry them forward to future years.
C. Claim a capital gains tax rebate.
D. None.

Answer 7

B Unit 1; 1.3.3.4

Question 8

A person is a UK domicile. Which of the following assets would not be liable to UK inheritance tax on death?

A piece of personal jewellery valued at £20,000.
B. A Spanish property used for holiday visits.
C. Euros held for use on foreign holidays.
D. Shares purchased on the UK stock market.

Answer 8

C Unit 1; 1 3.3.4

Question 9

Brian is reviewing a range of investment products before selecting the most appropriate solution for his client, Claire. Which factor is he least likely to take into account when selecting an appropriate solution?

A. Claire’s desire to access her investments in five years to purchase a timeshare in Portugal.
B. Claire’s existing portfolio of investment products.
C. The fact that she has recently moved into a higher rate tax bracket.
D. The possibility of Claire getting married in the future and having children.

Answer 9

D Unit 1; 4 3

Question 10

In the calculation of capital gains tax liability, what are ‘allowable deductions’?

A. Costs incurred in acquiring, enhancing and disposing of an asset. B. Government fixed allowances dependent on how long the asset is held.
C. The annual exemption limit and the indexation allowance.
D. The annual exemption limit and the taper relief.

Answer 10

A Unit 1; 1 3.3.4

Question 11

Who is allowed to use expenses to reduce income tax liability?

A. Employees only.
B. Employees, partners and sole traders.
C. Sole traders only.
D. Sole traders and partners only.

Answer 11

B Unit 1; 1.3.3.2

Question 12

Tony, who is aged 79, has started to receive a small state pension. Which one of the following sources of income will result in him becoming a higher rate taxpayer?
A. All earned income.
B. An educational grant.
C. Any earned income that exceeds his personal allowance.
D. A settlement from his parents.

Answer 12

C Unit 1; 1 3.3.2

Question 13

On a with-profits policy, what is a reversionary bonus?

A. An irregular payment, determined by the type of policy and the number of lives assured.
B. A payment made on maturity at the discretion of the assurance company.
C. One which is declared regularly and, once attaching to the policy, is guaranteed payable.
D. One which reverts to a minimum level in the event of a claim.

Answer 13

C Unit 1; 3 2.5.1 2

Question 14

A capital gains tax liability could arise in which of the following circumstances?

A. A corporation that has just been sold.
B. A partnership’s daily trading.
C. A public limited company’s daily trading.
D. The retirement of a sole trader.

Answer 14

D Unit 1; 1.3.3.4

Question 15

There would be a potential capital gains tax liability on which one of the following transactions?

A. An antique bought by an individual for £10,000 and sold for a profit.
B. An individual’s main residence sold at a profit of £45,000.
C. A painting bought by a self-employed dealer for £20,000 and sold for a profit.
D. Government stocks bought for £40,000 and sold at a profit.

Answer 15

A Unit 1; 1.3.3.4

Question 16

Class 4 National Insurance contributions would be paid by:

A. Brian, retired, who wishes to enhance his State earnings related pension.
B. Jack, self-employed, who makes regular profits exceeding £12,000 pa.
C. Julie, an employed wife of a sole trader, with earnings of £14,000 pa.
D. Stephanie, self-employed, who wishes to make voluntary contributions in respect of earning gaps.

Answer 16

B Unit 1; 1.3.3.3

Question 17

What is the usual financial priority of a retired individual?

A. Build up a capital reserve.
B. Increase income from investments.
C. Maintain his/her standard of living.
D. Minimise capital gains tax liability.

Answer 17

C Unit 1; 4.2

Question 18

Which one of the following would be important to a customer when considering their protection needs?

A. An interest rate that suits their budgeting requirements.
B. Money payable under the policy to keep pace with inflation.
C. To be able to access money immediately.
D. To be able to track the record of fund managers.

Answer 18

B Unit 1; 3 3.1.10

Question 19

. What is the stamp duty reserve tax due on a purchase of bearer instruments with a market value of £100,000?
A. £500.
B. £1,000.
C. £1,500.
D. £2,000.

Answer 19

C Unit 1; 1.3.3.7

Question 20

For which type of share does a warrant holder have the right to subscribe?
A. Convertible.
B. Ordinary.
C. Preference.
D. Redeemable.

Answer 20

B Unit 1; 3.4

Question 21

Where a person with a valid will dies, the insurer will determine the identity of the personal representatives by:

A. obtaining a copy of the grant of letters of administration.
B. obtaining a copy of the grant of probate.
C. requesting a certified copy of the will.
D. requesting a signed declaration from the solicitor.

Answer 21

B Unit 1; 6 1.1

Question 22

Nick and Lynne are keen to take advantage of a better deal and remortgage with a new lender. However, their existing lender has informed them that if they move, they will have to pay an additional six months’ interest. The most likely reason for this is that:

A. their lender is reclaiming the valuation fee outlay.
B. they have a fixed rate mortgage.
C. they have arrears on the mortgage account.
D. they have a variable rate mortgage.

Answer 22

B Unit 1; 3.5.1.3 3

Question 23

Which Social Security benefit is described as a tax-free benefit for disabled people who need personal care at, or after, age 65?

A. Attendance allowance.
B. Disability living allowance.
C. Invalidity benefit.
D. Severe disablement allowance.

Answer 23

A Unit 1; 1.3.5.3 3

Question 24

Which of the following is a mutual organization?

A. Bank.
B. Friendly Society.
C. Insurance company.
D. Stock brokers.

Answer 24

B Unit 1; 1.2.2

Question 25

When acting as the agent of a principal, it is a fundamental rule that:

A. an agent can conclude contracts on behalf of the principal.
B. an agent must act within his apparent authority.
C. a principal is always responsible for the acts of the agent.
D. a principal must ratify the acts of his agent.

Answer 25

A Unit 1; 6 3

Question 26

Which one of the following will usually be the priority need associated with young people taking out their first mortgage during early working life?

A. An emergency fund.
B. Income protection.
C. Medium-term investments.
D. Pension planning.

Answer 26

B Unit 1; Section 4

Question 27

Which of the following life assurance policies carries the most risk?

A. Non-profit.
B. Unitised with-profits.
C. Unit-linked.
D. With-profits.

Answer 27

C Unit 1; 3.2.5

Question 28

The European Union has issued a new Directive. This means that each member State:

A. can choose whether or not to adopt the Directive.
B. has the choice of how to meet the Directive’s objectives.
C. must implement the Directive in its entirety with the specified timescale.
D. must implement the Directive, provided the member state is part of the Eurozone.

Answer 28

B Unit 1; 1 3.1

Question 29

For income tax purposes, self-employed people are taxed on their:

A. gross profit.
B. net profit.
C. personal drawings from the business.
D. turnover.

Answer 29

B Unit 1; 1.3.3.2

Question 30

For whom is a tied adviser acting as an agent?

A. Financial Conduct Authority.
B. Independent intermediary.
C. Product provider.
D. The customer.

Answer 30

C Unit 1; 6.3

Question 31

Which one of the following is not a feature of ordinary shares? The shareholder:

A. Has the right to receive a share of the profits.
B. Has the right to vote at annual general meetings.
C. Is liable for the debts of the company.
D. Ranks after preference shareholders.

Answer 31

C Unit 1; 2.3.1

Question 32

A key difference between a warrant and a call option is that a warrant:

A. can usually be traded by investors on the open market.
B. has an exit charge if the investor chooses not to exercise their right to buy.
C. is generally issued by companies to give the warrant-holder the right to purchase that company’s ordinary shares.
D. places the legal obligation on the investor to purchase at a fixed price on the specified date.

Answer 32

C Unit 1; 3 4

Question 33

Jon has notes and coins that are accepted as legal tender. This is because they have:

A. been approved by the Treasury.
B. been issued by a high street bank.
C. the backing of the government and the central bank.
D. the International Monetary Fund’s backing and are issued by the Government.

Answer 33

C Unit 1; 1 1

Question 34

A potential disadvantage of a fixed-rate mortgage is that:

A. if the fixed rate is lower than the standard variable rate, the lender will add the shortfall to the loan.
B. the new rate payable at the end of the term will always be higher that the rate on the fixed rate deal.
C. the rate throughout the term will generally be higher than the prevailing standard variable rate.
D. there is often a substantial up-front arrangement fee that must be taken into account by the mortgagor.

Answer 34

D Unit 1; 3.5.1.3 3

Question 35

Which one of the following statements in respect of capital gains tax (CGT) is correct?

A. CGT may be payable on a deceased’s estate in addition to inheritance tax.
B. Chargeable assets held within and outside the UK may be subject to CGT on disposal.
C. Premium Bond and Lottery winnings are subject to CGT because they are classed as unearned income.
D. The annual exemption allowance may be carried forward for use in a later tax year.

Answer 35

B Unit 1; 1.3.3.4

Question 36

Which one of the following usually becomes the priority financial need on becoming a parent?
A. Investment.
B. Pensions.
C. Protection.
D. Savings.

Answer 36

C Unit 1; Section 4

Question 37

Suzy bought an antique Chinese vase in 2017 and recently sold it at an auction at a profit of £10,500. Which one of the following will she not be able to offset against any liability to capital gains tax?

A. Advertising costs.
B. The auctioneer’s commission for the sale.
C. The cost of acquiring the vase in 1985.
D. The cost of a repair to a hairline crack.

Answer 37

D Unit 1; 1.3.3.4

Question 38

For an investment to grow in real terms it must increase in value:

A. after allowing dealing costs.
B. at a rate greater than inflation.
C. at regular intervals.
D. in line with national average earnings.

Answer 38

B Unit 1; 5.4.1

Question 39

Which one of the following is a feature of a repayment mortgage?

A. Repayments will be fixed throughout the term of the mortgage.
B. The borrower will have to take out an investment policy to cover the shortfall at the end of the mortgage.
C. The capital amount does not reduce over the term of the mortgage.
D. The capital and interest payment proportions change over the term of the mortgage.

Answer 39

D Unit 1; 3.5.1.2. 1

Question 40

Under the rules of an Open-Ended Investment Company, three of the following types of charge may be applied. Which one is the exception?

A. Administration costs.
B. Annual management charge.
C. Bid-offer spread.
D. Initial charge.

Answer 40

C Unit 1; 3.2.3.4

Question 41

Why does an investment in a collective investment scheme carry reduced risk when compared with direct investment in equities?

A. Because collective investment schemes invest in a large number of different companies.
B. Because fund managers can negotiate higher dividend payments. C. Collective investment schemes invest in equities that are not normally available to individual investors.
D. Collective investments must guarantee, as a minimum, the return of capital invested.

Answer 41

A Unit 1; 3.2

Question 42

Which one of the following has the capacity to enter into a legal contract?

A. A company limited by guarantee.
B. An unauthorised insurance company.
C. A person under the age of eighteen years.
D. Someone who is purchasing guns for terrorist activities.

Answer 42

A Unit 1; 6.2

Question 43

Class 2 National Insurance contributions would be paid by:

A. an employed administration assistant earning £12,500.
B. an office cleaner paid £10,000 under the PAYE system.
C. a finance director in a firm of management consultants.
D. a sole trading hairdresser whose profits for the first year were £3,500

Answer 43

D Unit 1; 1.3.3.3

Question 44

Which one of the following descriptions is true of most investment bonds?
A. A regular premium, non-profit whole-of-life assurance.
B. A regular premium, unit-linked whole-of-life assurance.
C. A single premium, unit-linked whole-of-life assurance.
D. A single premium, non-profit whole-of-life assurance.

Answer 44

C Unit 1; 3 2.5.2

Question 45

Of the information below, gathered in respect of Alice, which item represents a hard fact?

A. Her investment portfolio performance has been below expectations.
B. Her savings account balance has fallen to £5,000.
C. She intends to increase her pension plan monthly contribution to £500.
D. She plans to retire by the age of 60.

Answer 45

B Unit 1; 4 1.1.3

Question 46

The basis of ‘utmost good faith’ is that:

A. all life assurance contracts are based on anticipated financial loss. B. companies base their underwriting on the information provided, rather than prejudice.
C. the insurer is legally obliged to manage the client’s money in an ethically and legally sound manner.
D. the proposer must declare all material facts to the insurer.

Answer 46

D Unit 1; 6 2

Question 47

In relation to power of attorney arrangements, which statement is correct?

A. an enduring power of attorney can be agreed on a verbal basis between donor and donee but ordinary power of attorney must be registered at the Public Trust Office.
B. an enduring power of attorney can be revoked at any time by the donor whereas an ordinary power of attorney can only be revoked by the Court of Protection.
C. an ordinary power of attorney becomes invalid if the donor becomes mentally incapable, whereas an enduring power of attorney remains effective.
D. an ordinary power of attorney remains valid if the donor becomes mentally incapable whereas an enduring power of attorney becomes invalid.

Answer 47

C Unit 1; 6 5

Question 48

Dick and Margaret have had their mortgage for two years and are concerned because during that period, interest rates have fallen but their monthly payment to the lender has remained the same. Which type of mortgage do they have?
A. A base rate tracker.
B. A capped rate.
C. A discount rate.
D. A fixed rate.

Answer 48

D Unit 1; 3 5.1.3 3

Question 49

Why could equities be considered an inappropriate source of regular income for non-taxpayers?

A. Dividends are normally paid annually.
B. Income from equities is subject to capital gains tax.
C. Stamp duty is payable on all dividends paid.
D. Tax deducted on dividends paid cannot be reclaimed.

Answer 49

D Unit 1; 2.3.1.2. 1

Question 50

How can a bank involved in wholesale banking raise money quickly in order to finance business activities?

A. By a further issue of shares.
B. By borrowing from the Bank of England.
C. By issuing gilts.
D. From the interbank market.

Answer 50

D Unit 1; 1.2.3