Cemap1 Flashcards
1
Q
Banks and building societies perform an important economic function by
A
Using short term deposits to fund long term loans
2
Q
A taxpayer would always receive a real rate of return on a deposit account when the…
A
Interest after tax is greater than inflation
3
Q
What is a gilt?
A
An investment in the form of a loan to the government
4
Q
Which of the four main asset classes has the greatest element of risk, but potentially provides the highest returns over the medium to long term?
A
Equities
5
Q
Individual investors wishing to invest in commercial property will usually do so by investing in…
A
Collective funds
6
Q
Equities held within an ISA are fully exempt from which taxes
A
Income tax and capital gains tax
7
Q
Warrants are a form of derivatives based on which type of asset?
A
Equities
8
Q
Which type of policy is usually most appropriate to fund future research inheritance tax liability on an estate?
A
A whole of life policy
9
Q
What economic condition would increase the price of gilts?
A
When interest rates are expected to fall
10
Q
Which of the following is not liable for tax under any circumstance?
A interest on ISA’s
B interest on building society accounts
C interest portion of a purchase life annuity
D profit of a sale of a painting
A
A interest on Isa
11
Q
Individual investors wishing to invest in commercial property will usually do so by investing in…
A
Collective funds
12
Q
What economic position would increase the price of gilts
A
When rates are expected to fall
13
Q
Which ns&i product (legacy or current) is fully protected against the risk of inflation?
A
Index- linked national savings certificates
14
Q
The capital gains tax position for an individual investor holding unit trust will be
A
A liability to CGT on all encashments at their highest marginal tax rate subject to the annual cgt allowance
15
Q
Which of the following statements concerning convertible share is correct?
A it is the same as a redeemable share
B it prohibits the company from being quoted on the stock exchange
C it is a type of preference share
D it cannot be converted into an ordinary share
A
C it is a type of preference share.
16
Q
What is a call option?
A
An agreement giving the right to buy shares at a fixed price within a set period
17
Q
Emily is a tax payer who chose to reinvest the dividends under her unit trust In order to purchase additional units. How is this treated for tax purposes?
A
She is taxed on the dividends as though they are paid to her in cash
18
Q
What is a tracker fund?
A
A fund which tracks an index
19
Q
The offer price of a unit is?
A
The price at which the investor buys the unit
20
Q
Generally what charges are there on unit trusts?
A
A bid-offer spread and an annual management charge
21
Q
What is the maximum amount if any an individual can invest in an investment trust in any one tax year?
A
Unlimited
22
Q
Which one of belindas needs would direct investment in gilts be unable to satisfy?
A fixed income
B low risk investment
C return free of captial gains tax
D income free higher rate income tax
A
D m one free higher rate income tax
23
Q
Unit trusts are strictly governed by a set of terms. I’m what document are these terms defined?
A
Trust deed
24
Q
Which type of investment would be most suitable for a non tax-payer requiring monthly income with no risk to capital?
A
National savings income bonds
25
What rate of capital gains tax, if any, would a basic rate taxpayer be liable to on gains made from gilts?
0% none
26
A warrant holder had the right to subscribe for which type of share?
Ordinary share
27
What are the regular payments made out of investment trusts known as?
Dividends
28
Historically, charges on unit trusts have generally comprised
A bid offer spread and ab annual management charge
29
Client requires a life policy which will pay our online a guaranteed cash value at maturity and needs the level of life cover and premiums to remain fixed throughout the term, which policy would be most suitable?
Non-profit endowments assurance
30
What is the principal purpose of whole of life plans
Protection
31
Which one of the following statements concerning family income benefit plans is correct?
A they are a type of whole of life assurance
B income payments are payable for a maximum of 10 years
C the Term will not extend beyond the 50th birthday
D benefits may be received as a discounted lump sum
D benefits may be received as a discounted lump sum
32
What client need at endowments designed to meet?
Regular saving s
33
What type of endowment will normally guarantee that the original mortgage loan will be repaid in full at the end of the term?
Non profit
34
Which one of the following is least likely to affect the prices of gilts?
A the time outstanding until redemption
B the length of time is has been held for
C current market interest rates
D anticipated changes in interest rates
The length of time is has been held for
35
Subject to certain conditions a covetable share can be converted into which of the following types of share?
Ordinary
36
Which one did the following is true of open ended investment companies (OEIC)?
A switches are made on a mid price basis
B shares are bought and sold at the same price
C there is no initial charge
D the initial charge is included in the bid/offer spread
B shares are bought and sold at the same price
37
Who is responsible for paying capital gains tax from unit trusts to the inland revenue ?
The unit holder
38
If the proposer and the life assured are the same person, what is this type of contract known as?
Own life
39
Company take out a key person term assurance plan for 3 years on the life of their chief designer. What best describes the tax position?
Premiums may be allowed as a business expense and if so policy proceeds are taxable.
40
The main benefit of increasing term assurance is that
Provides a hedge against inflation
41
What best describes most investment bonds?
A single premium unit linked non qualifying whole of life assurance
42
Who issues gilts ?
Debt management office
43
Gilt redemption dates
Shorts 7 years
Medium 7-15 years
Long over 15 years
44
Gilts in a nutshell
Fixed interest paid 6 monthly called a coupon.
Subject to income tax if interest rates allow
Free of capital gains tax
45
Corporate bonds
Subject to income tax
Sold by companies
High yield
Convertible bonds can be converted to shares at a later date
46
Fixed interest securities
Low risk securities
Known as bonds
Fixed income investments
Most bought and sold on the stock market
47
Local authority bonds
Secured against local authority asset
Income paid 6 monthly and is taxable
48
Building society
Known as PIB
No fixed redemption date
Small market for this type
If building society was to go under monies paid after shareholders
49
Bonds
Interest from bonds can be paid into ISA to avoid CGT
50
Child trust fund
No longer available
Tax free investment sponsored by government
Child access from 16
51
Company shares
Buy and sell shares on stock exchange
Cannot cash in shares
Original price is set but once on stock market price can vary
Profits are paid by dividends
Subject to CGT unless put in IsA
52
Preference shares
Less risk
Rank after ordinary shareholders for dividend payments
Rank ahead of company winding up
53
Cover table share
Has right to be converted to ordinary share at a later date
54
Rights issue
New shares must be offered to current shareholders before market
55
Earnings per share
Net profit divided by share price
56
Price earnings ratio
Share price divided by earnings per share
57
Dividend cover
Coverage ratio of company preferred dividend
58
Loan stocks
Lend money to companies and are paid interest not dividends
59
Debentures
Load a secure against company assets which can later be converted to ordinary shares
60
Derivatives
Highest risk product
Bets on how an investment will perform
Handled by investment banks
61
Warrant
Allows the holder the option to purchase a specified number of shares at a particular price on a certain date.
Not buy a share buying the right to buy a share
62
Options
Option to buy a share in the future- can also trade option on stock exchange
63
Futures
Obligations to buy and sell in future
Forward contracts not traded
64
Structured product
Guarantee of original capital plus high interest
Lots of exceptions to rule
If index falls on stock markets during the investment period then money not guaranteed
65
Structure deposits
Interest returns can vary
66
Structures capital at risk product (SCARP)
Income and capital can vary
67
No structured capital at risk product
Capital is guaranteed unless firm goes bust
68
Enterprise investment scheme (EIS)
Not quoted on London stock exchange
Government give tax relief IHT and CGT deferral
69
Venture Capital Trusts
Listed on stock exchange, similar tax reliefs to EIS
70
Uk stock exchange
Companies must have been trading for 3 years
1/4 on shrew must be in public hands
71
Alternative Investment Markey (Aim)
Is to help smaller companies start trading,
Less strict to stock exchange
Higher risk
72
REIT real estate investment trust
Collective - allows individual to buy in commercial property as a collective
No dividends
Good amount of capital gains
No more than 10% shares
Capital can be invest through ISA
73
Under a flexible whole of life assurance, the assures has the option to
Vary the level of cover depending on the circumstances
74
A non tax payer with a small portfolio of unit trusts will pay tax on its dividend distribution of;
0%
75
An OEIC is like a unit trust in which way?
Income and capital gains tax for the investor is the same
76
An endowment assurance policy used in connection with a mortgage is often referred to. As
Collateral security
77
At what rate would capital gains tax be charged on gains made on the sale of a unit trust investment by a higher rate taxpayer?
20%
78
What type of assurance is family income benefit?
Decreasing term
79
The difference between abs endowment policy and term assurance is that endowments
Provide a return at the end of the term
80
Which type of endowment will normally guarantee yes that the original mortgage loan will be repaid in full at the end of the term?
Non profit
81
What advantage does a unit linked policy have over a with profits policy for a mortgage repayment purpose?
The possibility of repaying the loan early.
82
On her death, Ginnys estate will significantly exceed the nil rate threshold and the sole beneficiary is a registered charity. What rate of inheritance tax, if any. Is levied on this this excess?
No inheritance tax is levied
83
A self employed plumber broke his leg at work a month ago and is unable to work. Which state benefit may her be eligible at the present time?
Employment and support allowance
84
In the uk which index is commonly used to measure the general rate of inflation?
Consumer price index
85
Which event automatically invalidates a will?
The death of the main beneficiary
86
The taxable value of a potentially exempt transfer is
It’s value at the date of the gift
87
Which type of company if any would be liable to pay capital gains tax?
None
88
What is the position when a capital loss is made on disposal of an asset?
It can be offset initially against gains made in the year the loss occurred
89
To which state benefit would a self employed person be entitled to?
Basic state pension
90
The basic state pension increases annually in line with the highest of 2.5% earnings increases and
Consumer price index
91
Which is most likely to become a priority financial need for someone retiring at state pension age?
Mitigation inheritance tax liability
92
What is the term used for the country where an individual has his permanent home?
Domicile
93
What exactly is the grant of probate?
Authority to carry out the instructions contained in a will
94
How are taxable profits defined for the self employed?
The gross profit less allowable business expenses
95
Which of the following statements transfers could give rise to an immediate inheritance tax liability?
A 25k paid into discretionary trust
Monies paid into a discretionary trust
96
Excluding special arrangements, how frequently are VAT returns usually completed?
Quarterly
97
Which social security benefits applies specifically to individuals at or after age 65?
Attendance allowance
98
The new style income and support Allowance is means tested in respect of
Neither income or savings
99
A partner has a 30% stake in the business. If a profit of £30k is made in a particular fiscal year which one of the following statements is correct
His liability to tax in that fiscal year is based on £9k
100
On what basis will the net profit of a sole trader be assessed for tax in 22/23
Current year
101
On a potentially exempt transfer (pet) how many years must the donor survive before IHT tapering relief becomes of any real benefit
3 years
102
The information in the client agreement shows the prospect
Whether the investment adviser is a tied agent or independent finance adviser
103
The frequency of compliance visits by the FCA’s officers to a particular firm depends on the
Regulators judgement of the firm
104
Which organisation is responsible for dealing with enforcement of any breaches of the current money laundering regulations by an authorised firm?
FCA
105
If stakeholder savings products are sold via the basic advise process what impact will this have on the sales process?
It will streamline the process
106
What document normally accompanies the cancellation notice and must provide the client with full details of his investment, including the amount of commission payable to the adviser?
The post sales product disclosure
107
Under the conduct of business rules, a trust group is classified as which type of customer?
An eligible counterparty
108
In relation to a unit trust transaction, what is the minimum period for which regulated firms are required to maintain records of a private customers personal and financial circumstances
Three years
109
When transacting financial business, a single tied adviser from a life office will act on behalf of
The life office
110
Under the financial services act, what has been introduced in relation to compensation schemes?
Consolidation of the previous compensation schemes into one combined scheme
111
Who is ultimately responsible for the acts or omissions of a firms appointed representative?
The firm
112
What power does the FCA have against individual whom it discovers has committed a criminal act under the financial services act?
To apply regulatory sanctions and take civil and criminal action
113
What method of complains monitoring is primarily used by the FCA in relation to firms categorised as Flexible portfolio firms?
Desk-based reviews
114
When must a firm report information. To the FCA which indicates that an approved persons fitness and property to carry out her role has been adversely affected?
Immediately
115
A financial adviser has advised a client to invest in an investment bond, what documents must the client be given?
Advisers business card
IDD & menu
Terms of business
KFD
Client specific Illustration & policy
Suitability letter
116
How must an adviser refer to the stakeholders saving product in terms of risk?
Risk controlled
117
Under the proceeds of crime act 2003, where money laundering is suspected, disclosure must be made either to the firms money laundering reporting office or
National crime agency
118
Under the bribery act, someone who is offering a bribe is defined as carrying out
Active bribery
119
Under the consumer credit act, policy loans by insurance companies are not regulated if the exceed which amount ?
No upper limit
120
Which individual or organisation is directly responsible for overseeing the activities of the FCA?
HM treasury
121
As a restricted adviser, you find that your clients need a product that your company cannot provide. To ensure that our client are best served you
Refer them to an independent adviser
122
The document which explains exact workings of reversionary and terminal bonuses applicable to a particular company is
Principles and practices of financial management
123
Under the financial services act cancellation rules, if a cancellation notice is completed and returned within 14 days the client of; regular premium unit linked life policy is entitled to
A full refund of premiums
