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Chapter 1 Flashcards

1
Q

Suresh is considering the purchase of a UK Government gilt. The price of the gilt is published daily in the Financial Times but this will not reflect the actual price he could buy it at because:
Select one:
a. the price quoted is the clean price.
b. it will only quote the price for selling gilts.
c. it is the average price quoted for the gilt on the previous day.
d. the price quoted is ex-dividend.

A

a. the price quoted is the clean price.

SEE CHAPTER 1B2B

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2
Q

Sandra lives in the UK and is considering investing some of her cash deposits into an offshore account. She should be aware that:
Select one:
a. currencies regarded as strong may not rise enough to compensate for their lower interest rates.
b. most foreign countries have the same level of supervisory structure as the UK and institutional collapse may be less probable.
c. high rates of interest can be achieved and they are usually offered by low inflation countries with potentially strengthening currencies.
d. there is no additional risk of investing in offshore accounts since the Financial Services Compensation Scheme would protect her regardless of where she places her money.

A

a. currencies regarded as strong may not rise enough to compensate for their lower interest rates.

SEE CHAPTER 1A2D

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3
Q 
Barry has £50,000 deposited with ABC bank and £100,000 deposited with XYZ bank, both of which are based in London. What is the total amount he would receive under the FSCS in the event of default?
Select one:
a. £135,000.
b. £85,000. 
c. £125,000.
d. £150,000.
A

a. £135,000.

SEE CHAPTER 1A2A

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4
Q

Which combination of inflation and interest rates is of the most benefit to savers in the final year of a cash savings plan?
Select one:
a. Low inflation and high interest rates.
b. High inflation and high interest rates.
c. High inflation and low interest rates.
d. Low inflation and low interest rates.

A

a. Low inflation and high interest rates.

SEE CHAPTER 1A2

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5
Q 
Chris, who is not a first time buyer, will shortly exchange contracts on the purchase of a flat for £290,000 which he intends to live in with his partner. This includes £20,000 for fixtures and fittings. How much stamp duty land tax will he pay on the purchase?
Select one:
a. £4,500.
b. £4,000.
c. £3,300.
d. £3,500.
A

d. £3,500.

SEE CHAPTER 1D3A

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6
Q

Sheila buys a gilt four days before the next interest payment date. It is usually TRUE to say that she:
Select one:
a. will not receive the impending interest payment and will receive ‘cum dividend’.
b. will not receive the impending interest payment and will pay a dirty price.
c. will receive the impending interest payment and will pay a higher price than the clean price.
d. will receive the impending interest payment and will pay a lower price than the clean price.

A

b. will not receive the impending interest payment and will pay a dirty price.

SEE CHAPTER 1B2C

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7
Q 
Ami has a gilt which she bought at £118. The nominal value is £100 and it pays a 6.5% coupon. The running yield is:
Select one:
a. 6.5%.
b. 3.92%.
c. 5.85%.
d. 5.51%.
A

d. 5.51%.

SEE CHAPTER 1B4A

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8
Q 
In May 2018, Paul invested £20,000 in a cash ISA. In November 2018, he withdrew £4,000. What is the maximum amount he can subsequently invest into the cash ISA in this tax year?
Select one:
a. £4,000. 
b. £20,000.
c. Nil.
d. £16,000.
A

a. £4,000.

SEE CHAPTER 1A3E

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9
Q 
David invests in a fixed rate bank account when interest rates are high. At the end of the term, interest rates have fallen, and he is unable to secure a similar rate. Specifically, this type of risk is known as:
Select one:
a. market risk.
b. capital risk.
c. liquidity risk. 
d. reinvestment risk.
A

d. reinvestment risk.

SEE CHAPTER 1A2C

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10
Q

Simon contributes £30 per month into a NS&I Direct ISA. This means that he is:
Select one:
a. able to invest up to an additional £20,000 into a stocks and shares ISA.
b. able to invest up to an additional £19,640 into it in the current tax year.
c. unable to make any further subscription to his NS&I Direct ISA this tax year.
d. unable to contribute to a stocks and shares ISA.

A

b. able to invest up to an additional £19,640 into it in the current tax year.

SEE CHAPTER 1A4A

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11
Q

Jilly has the following holdings within her portfolio: shares in a top UK listed company, a collective investment in American shares; a collective investment in a wide range of Japanese shares, and a holding in a UK Government gilt. When looking at their respective performance, she would benchmark the:
Select one:
a. American shares against the Hang Seng index.
b. UK company against the FTSE SmallCap index.
c. UK Government gilt against the FTSE 100 index.
d. Japanese shares against the TOPIX index.

A

d. Japanese shares against the TOPIX index.

SEE CHAPTER 1C6D

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12
Q 
Thierry has four shares in his portfolio: Company A has a dividend of 8.1p and a share price of 120p; Company B has a dividend of 4.1p and a share price of 57p; Company C has a dividend of 12.7p and a share price of 320p; and Company D has a dividend of 22.8 and a share price of 466p. Which company will give Thierry the highest dividend yield?
Select one:
a. Company A.
b. Company C.
c. Company B. 
d. Company D.
A

c. Company B.

SEE CHAPTER 1C5B

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13
Q 
XYZ Ltd has earnings per share of 20p, a current share price of £2 and pays a dividend of 5%. What is the dividend cover for XYZ?
Select one:
a. 10. 
b. 4.
c. 2.
d. 12.
A

c. 2.

SEE CHAPTER 1C5C

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14
Q 
Maleek is looking to purchase a range of investments via her online platform. She should be aware that she will need to pay stamp duty reserve tax when she buys a[n]:
Select one:
a. FTSE100 listed share. 
b. AIM listed share.
c. fixed term cash deposit.
d. UK Government gilt.
A

a. FTSE100 listed share.

SEE CHAPTER 1C2A

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15
Q

Three years ago Richard placed £3,000 into an NS&I Children’s Bond for his daughter Rachel. Rachel is a child movie star who earns approximately £1.3m a year. Which of the following statements is TRUE regarding the taxation treatment of this investment?
Select one:
a. Tax will be payable by Richard on any amount of interest over £100 per annum.
b. No tax is due from either Richard or Rachel.
c. Tax will be payable by Richard if he is a higher or additional rate taxpayer.
d. Rachel will pay tax on any interest received at the additional rate.

A

b. No tax is due from either Richard or Rachel.

SEE CHAPTER 1A4C

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16
Q 
Samir's investment has just matured where the performance was linked to the value of an equity index. Samir's investment was MOST likely to be a:
Select one:
a. NS&I guaranteed growth bond.
b. structured deposit. 
c. corporate bond.
d. zero coupon bond.
A

b. structured deposit.

SEE CHAPTER 1A3B

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17
Q

Vinit has purchased a gilt for a £100 nominal value with a term of 6 years remaining. It has a coupon of 5% and the clean price is £92. He will therefore make a capital:
Select one:
a. loss at redemption with a running yield below 5%.
b. loss at redemption with a running yield above 5%.
c. gain at redemption with a running yield above 5%.
d. gain at redemption with a running yield below 5%.

A

c. gain at redemption with a running yield above 5%.

SEE CHAPTER 1B4B

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18
Q 
John's investment is no risk, sold at a discount to its par value and has a term of 3 months. What type of investment does he have?
Select one:
a. Permanent interest bearing share.
b. Treasury bill. 
c. Certificate of deposit.
d. Deposit account.
A

b. Treasury bill.

SEE CHAPTER 1A5B

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19
Q

Jim holds the minimum required balance on his high interest deposit account. What would be the potential penalties for Jim withdrawing some of the funds without giving the required 90 days notice?
Select one:
a. No penalties as long as he kept the balance of the money in the account for the following 90 days.
b. Loss of the interest differential that was being provided for the larger deposit only.
c. Loss of the interest differential that was being provided for the larger deposit and loss of interest for the 90 days notice required on the account.
d. Loss of interest for the 90 days notice required on the account only.

A

c. Loss of the interest differential that was being provided for the larger deposit and loss of interest for the 90 days notice required on the account.

SEE CHAPTER 1A1

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20
Q 
Anil buys a corporate bond and pays a clean price of £113.60 for a £100 nominal value of stock paying 7% coupon. Assuming it has exactly four years to run to maturity and had an original term of eight years, the gross redemption yield will be:
Select one:
a. 2.76%.
b. 2.69%. 
c. 3.17%.
d. 3.88%.
A

c. 3.17%.

SEE CHAPTER 1B4B

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21
Q

ZYX Ltd has recently gone into liquidation. Adam owns ordinary share capital in the company, Ben owns preference shares and Charlie owns a corporate bond issued by the company. Where do Ben’s shares rank following the liquidation?
Select one:
a. After Charlie’s loan capital and Adam’s ordinary share capital.
b. Ahead of Adam’s ordinary share capital but after Charlie’s loan capital.
c. Ahead of Adam’s ordinary share capital and Charlie’s loan capital.
d. Ahead of Charlie’s loan capital but after Adam’s ordinary share capital.

A

b. Ahead of Adam’s ordinary share capital but after Charlie’s loan capital.

SEE CHAPTER 1C3A

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22
Q 
ABC Manufacturing PLC's credit rating has been marked down unexpectedly. The yield from bonds previously issued by them will:
Select one:
a. fluctuate.
b. be unaffected. 
c. fall.
d. rise.
A

d. rise.

SEE CHAPTER 1B5B

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23
Q

Caroline purchases a fixed interest security with a coupon of 6% for £125. In respect of this investment it is TRUE to say that the:

You must select ALL the correct options to gain the mark:

a. redemption yield takes into account any tax that Caroline will have to pay.
b. redemption yield is a more accurate calculation of the yield on the security than an interest yield.
c. redemption yield will be higher than the interest yield.
d. interest yield is 4.8%.

A

b. redemption yield is a more accurate calculation of the yield on the security than an interest yield.
d. interest yield is 4.8%.

SEE CHAPTER 1B4

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24
Q 
Adam ensures his portfolio always contains an appropriate amount in cash as he wishes to mitigate the impact of:
Select one:
a. inflation risk.
b. default risk.
c. interest rate risk.
d. liquidity risk.
A

d. liquidity risk.

SEE CHAPTER 1B5

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25
Q 
The following information is extracted from the balance sheet of Company XYZ plc: Issued share capital £50m, reserves £120m, current assets £70m, fixed assets £200m, current liabilities £40m, long term debt £60m. The nominal value of the shares is £1 each. What is the net asset value (NAV) per share?
Select one:
a. £3.40. 
b. £4.60.
c. £5.80.
d. £1.
A

a. £3.40.

SEE CHAPTER 1C5E

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26
Q 
In the event of a company liquidation, which is ranked LOWEST in terms of rights to payment?
Select one:
a. Preference shares.
b. Ordinary shares. 
c. Loan capital.
d. Creditors.
A

b. Ordinary shares.

SEE CHAPTER 1C3

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27
Q

Kim has £100,000 in a UK deposit account; Anisha has £100,000 in an offshore sterling deposit account. It is TRUE to say that:
Select one:
a. Kim’s deposit will be covered in full by the Financial Services Compensation Scheme.
b. Anisha is likely to receive a higher rate of interest.
c. Kim will always receive her interest net of tax.
d. Anisha’s rate of interest must be fixed for a specific term.

A

b. Anisha is likely to receive a higher rate of interest.

SEE CHAPTER 1A3D

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28
Q 
Company A has recently had its credit rating improved. As a result, the yield demanded by investors from the stock is likely to:
Select one:
a. fluctuate.
b. stay the same.
c. reduce.
d. increase.
A

c. reduce.

SEE CHAPTER 1B5B

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29
Q 
George has £100,000 in a deposit account with Barclays in Jersey and £90,000 in a deposit account with Lloyds in Manchester. What MAXIMUM amount of these deposits, if any, is protected under the Financial Services Compensation Scheme?
Select one:
a. £85,000. 
b. £170,000.
c. £90,000.
d. £190,000.
A

a. £85,000.

SEE CHAPTER 1A2A

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30
Q

A UK listed company ranked 300th by market capitalisation would be part of which FTSE indices?
You must select ALL the correct options to gain the mark:
a. All-Share.
b. Small Cap.
c. 350.
d. 250.
e. Fledgling.

A

a. All-Share.
c. 350.
d. 250.

SEE CHAPTER 1C6B

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31
Q

Henry purchased a fixed interest security cum dividend 30 days before the next income payment was due. This means that:

You must select ALL the correct options to gain the mark:

a. he will receive the full six months’ interest on the next interest payment date.
b. he will pay less for the security than if the purchase had been ex-dividend.
c. the seller will receive the next interest payment.
d. he will pay the clean price less interest accrued up to the settlement date.
e. the amount paid by Henry for the security will be the dirty price.

A

a. he will receive the full six months’ interest on the next interest payment date.
e. the amount paid by Henry for the security will be the dirty price.

SEE CHAPTER 1B2C

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32
Q

Andi is considering renting out a room in her house. She anticipates rental income of £150 per week and expects to incur £300 a year in allowable expenses. It is TRUE to say that:
Select one:
a. there would be a taxable amount of rent under the rent a room scheme.
b. the amount of tax-exempt rent would be greater if the room was sublet.
c. charges for any related goods and services provided are not tax-exempt.
d. there would be no tax to pay under the rent a room scheme.

A

a. there would be a taxable amount of rent under the rent a room scheme.

SEE CHAPTER 1D6

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33
Q

Richard is considering an investment into soft commodities. Which statement is correct?
Select one:
a. There is a higher probability of a sudden and unfavourable price change in commodity prices than there is of a sudden collapse in share prices.
b. The price volatility of this asset class should be less than with his diversified equity portfolio.
c. He should not be exposed to supply and demand risk since stocks usually replenish annually.
d. This asset class will be closely correlated to his diversified equity portfolio.

A

a. There is a higher probability of a sudden and unfavourable price change in commodity prices than there is of a sudden collapse in share prices.

SEE CHAPTER 1E2

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34
Q

Harry is looking at the latest set of accounts of FGH plc and comparing these to the accounts for the same period for XYZ plc. What must he bear in mind?
Select one:
a. That the accounting policies of these two firms may differ even though they are in the same sector.
b. The management of both companies are under a duty not to change their accounting policies from year to year.
c. Since the periods are the same and the companies are in the same sector this should be a fair comparison.
d. The figures are forward looking so should be the most relevant information on which to base a decision.

A

a. That the accounting policies of these two firms may differ even though they are in the same sector.

SEE CHAPTER 1C5F

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35
Q

Joe is a higher rate taxpayer who owns conventional gilts in his investment portfolio. From a tax perspective, these gilts will be:
Select one:
a. subject to capital gains tax at 20%, but the income is tax-free.
b. subject to capital gains tax at 20%, and the income is taxable at Joe’s highest marginal rate.
c. free of capital gains tax, but the income is taxable at Joe’s highest marginal rate.
d. free of capital gains tax and the income is tax-free.

A

c. free of capital gains tax, but the income is taxable at Joe’s highest marginal rate.

SEE CHAPTER 1B4B

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36
Q

Charlie is purchasing £15,000 worth of shares electronically. The potential costs involved with his purchase will include:

You must select ALL the correct options to gain the mark:

a. commission, which is always paid as a percentage of the purchase price.
b. stamp duty.
c. UK Listing Authority levy.
d. stamp duty reserve tax.
e. Panel on Takeovers and Mergers levy.

A

b. stamp duty.
e. Panel on Takeovers and Mergers levy.

SEE CHAPTER 1C2A

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37
Q

Companies often raise long-term finance by issuing bonds rather than borrowing from banks. What are the advantages of doing this?
You must select ALL the correct options to gain the mark:
a. The interest rate on a bond can be renegotiated partway through its term.
b. The bond market offers a wide range of lenders to tap into.
c. Banks may not be prepared to lend the amount required.
d. Bonds do not have to be repaid unless the company is wound up.
e. Bonds are often the cheapest method of borrowing money.

A

b. The bond market offers a wide range of lenders to tap into.
c. Banks may not be prepared to lend the amount required.
e. Bonds are often the cheapest method of borrowing money.

SEE CHAPTER 1B

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38
Q 
Dave is considering investing some money into hard commodities, which could include:
Select one:
a. gold, crude oil and natural gas.
b. natural gas, crude oil and wheat.
c. gold, silver and coffee.
d. gold, cocoa and silver.
A

a. gold, crude oil and natural gas.

SEE CHAPTER 1E2

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39
Q

Bertrand has a portfolio of shares invested in Germany, France and Hong Kong. Which indices could he use as benchmarks for the various parts of his portfolio?

You must select ALL the correct options to gain the mark:

a. NASDAQ.
b. CAC 40.
c. Topix.
d. DAX 30.
e. Hang Seng.

A

b. CAC 40.
d. DAX 30.
e. Hang Seng.

SEE CHAPTER 1C6D

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40
Q

Joyce has let one of the rooms in her house to Terry. Terry has sub-let the room to a friend, Colin. What is the maximum amount of tax-exempt income they can receive?
Select one:
a. £4,250 for Joyce and £0 for Terry.
b. £7,500 for Joyce and £0 for Terry.
c. £3,750 for Joyce and £3,750 for Terry.
d. £2,125 for Joyce and £2,125 for Terry.

A

c. £3,750 for Joyce and £3,750 for Terry.

SEE CHAPTER 1D6

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41
Q

Neil is aware that some shares he owns are classified as ‘A’ ordinary shares. This means that:

You must select ALL the correct options to gain the mark:

a. they carry a higher level of risk than standard ordinary shares.
b. they receive the same dividend as other types of ordinary shares.
c. they have restricted or no voting rights.
d. their market price will usually be higher than standard ordinary shares.

A

a. they carry a higher level of risk than standard ordinary shares.
b. they receive the same dividend as other types of ordinary shares.
c. they have restricted or no voting rights.

SEE CHAPTER 1C3B

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42
Q

John, a basic rate tax payer, is looking to purchase a new ‘medium’ gilt. He will therefore receive a:

You must select ALL the correct options to gain the mark:

a. fixed redemption value.
b. payment on an annual basis.
c. fixed rate of interest.
d. repayment of capital after a fixed period.

A

a. fixed redemption value.
c. fixed rate of interest.
d. repayment of capital after a fixed period.

SEE CHAPTER 1B1

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43
Q

Gautum has invested in Treasury bills. Which of these characteristics of his investment is INCORRECT?
Select one:
a. The interest he will receive is linked to RPI three months prior to issue.
b. Their prevailing rate of return is often used as the benchmark ‘risk-free rate of return’.
c. He must have purchased a minimum of £500,000 nominal of bills.
d. He could have obtained them at a routine weekly auction.

A

a. The interest he will receive is linked to RPI three months prior to issue.

SEE CHAPTER 1A5B

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44
Q 
How much stamp duty land tax will be payable on the purchase of a residential property for £300,000, exclusive of £10,000 for fixtures and fittings, if the purchaser is NOT a first time buyer?
Select one:
a. £5,000.
b. £10,000.
c. £9,000.
d. £15,000.
A

a. £5,000.

SEE CHAPTER 1D3A

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45
Q

What factors are taken into account when calculating the net present value of rent payable under a lease for Stamp Duty Land Tax purposes?

You must select ALL the correct options to gain the mark:

a. Interest rates.
b. Inflation.
c. Term of lease.
d. Annual rent.
e. Property value.

A

b. Inflation.
c. Term of lease.
d. Annual rent.

SEE CHAPTER 1D3B

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46
Q

Caleb is considering an investment into a listed private equity investment company. Which of these statements is INCORRECT?
Select one:
a. They can invest directly in unlisted companies and in funds that invest in unlisted companies.
b. They are closed ended but not eligible for inclusion in an Individual Savings Account (ISA).
c. They are closed ended and traded on the London Stock Exchange.
d. They are a form of investment trust that is eligible for inclusion in an Individual Savings Account (ISA).

A

b. They are closed ended but not eligible for inclusion in an Individual Savings Account (ISA).

SEE CHAPTER 1C4A

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47
Q

Paula is thinking of investing into a property based OEIC rather than buying a direct commercial property. The main advantages to this approach would include:

You must select ALL the correct options to gain the mark:

a. lower levels of taxation.
b. increased liquidity.
c. reduced costs associated with management.
d. reduced diversification.

A

b. increased liquidity.
c. reduced costs associated with management.

SEE CHAPTER 1D1A

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48
Q

Petra wishes to calculate the earnings per share on an asset she holds. She could do this by having knowledge of the:

You must select ALL the correct options to gain the mark:

a. profit per share and the number of ordinary shares in issue.
b. dividend yield and current share price.
c. dividend cover and net dividend paid per share.
d. price earnings ratio and current share price.
e. net asset value and dividend cover.

A

a. profit per share and the number of ordinary shares in issue.
d. price earnings ratio and current share price.

SEE CHAPTER 1C5A

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49
Q

Neil is a UK-based investor considering investing in a non-sterling offshore account. He should be aware that:

You must select ALL the correct options to gain the mark:

a. some foreign countries do not have the same level of supervisory structures as the UK.
b. strong currencies make up for their low interest rate with currency gains.
c. strong currencies do not strengthen continuously against sterling.
d. high rates of interest are usually offered by countries with potentially collapsing currencies.
e. the Financial Services Compensation Scheme covers accounts held outside mainland UK by UK-based investors.

A

a. some foreign countries do not have the same level of supervisory structures as the UK.
c. strong currencies do not strengthen continuously against sterling.
d. high rates of interest are usually offered by countries with potentially collapsing currencies.

SEE CHAPTER 1A2D

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50
Q 
Derek is investing in a tracker fund which is not weighted according to market capitalisation. He is therefore tracking the:
Select one:
a. Nikkei 225.
b. Dax 30. 
c. FTSE AIM 100.
d. FTSE 100.
A

a. Nikkei 225.

SEE CHAPTER 1C6D

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51
Q

Paula has made a purchase of £12,000 worth of shares via CREST. She will:

You must select ALL the correct options to gain the mark:

a. pay a Panel on Takeovers and Mergers levy of 0.5%.
b. pay stamp duty reserve tax of £60.
c. not have to pay a Panel on Takeovers and Mergers levy.
d. pay stamp duty reserve tax on the subsequent sale of the shares.
e. pay a flat rate Panel on Takeovers and Mergers levy of £1.

A

b. pay stamp duty reserve tax of £60.
e. pay a flat rate Panel on Takeovers and Mergers levy of £1.

SEE CHAPTER 1C2A

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52
Q 
Mr and Mrs Cameron have three children aged 19, 15 and 13. What is the MAXIMUM that can be invested by the family in cash based Individual Savings Accounts (ISAs) excluding Junior ISAs in 2018/19?
Select one:
a. £60,000. 
b. £80,000.
c. £40,000.
d. £100,000.
A

a. £60,000.

SEE CHAPTER 1A3E

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53
Q

Anita directly owns a corporate bond. Should interest rates rise, the most likely outcome to the capital value and yield will be a:
Select one:
a. fall in capital value with the yield increasing.
b. rise in capital value with the yield also increasing.
c. rise in capital value with the yield decreasing.
d. fall in capital value with the yield also decreasing.

A

a. fall in capital value with the yield increasing.

SEE CHAPTER 1B5A

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54
Q

Jim has calculated the net asset value of ABC plc. This is most useful to him since the:
Select one:
a. company has a valuable brand name and therefore the goodwill of this company is very high.
b. company is expecting significant growth following the successful trial of a new drug.
c. company is the subject of a takeover bid from a competitor.
d. earnings potential of this company has been greatly increased of late due to the launch of a new product.

A

c. company is the subject of a takeover bid from a competitor.

SEE CHAPTER 1C5E

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55
Q

What is MOST likely to cause the price of gold to fall?
Select one:
a. The economy entering into recession.
b. Concerns over inflation increasing.
c. An indefinite pay strike by staff working for all gold mining companies in Australia.
d. The economy moving out of recession and into a growth phase.

A

d. The economy moving out of recession and into a growth phase.

SEE CHAPTER 1E2

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56
Q

Mary wishes to rent out a spare room in her house to her friend Lilly. In respect of the rent-a-room scheme:

You must select ALL the correct options to gain the mark:

a. Mary can deduct expenses incurred from any rent received and then deduct £7,500 in order to calculate any tax due.
b. Lilly must agree to stay at the property for at least six months in order for Mary to be able to claim the relief.
c. Mary is allowed to include charges for cooking and cleaning towards the £7,500 limit.
d. Mary will always have a choice as whether to claim the relief or not.

A

c. Mary is allowed to include charges for cooking and cleaning towards the £7,500 limit.
d. Mary will always have a choice as whether to claim the relief or not.

SEE CHAPTER 1D6

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57
Q

When comparing the different types of money market instruments, it is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. commercial bills are issued at a discount to their maturity value.
b. banks and building societies can raise funds by issuing certificates of deposit.
c. Treasury bills are often issued to finance the long-term cash needs of the government.
d. commercial bills are short-term negotiable debt that carry a fixed rate of interest.

A

a. commercial bills are issued at a discount to their maturity value.
b. banks and building societies can raise funds by issuing certificates of deposit.

SEE CHAPTER 1A5B

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58
Q

In respect of private equity funds and private equity investment companies, it is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. private equity funds tend to invest in companies for between three and seven years.
b. most UK private equity funds seek to raise money for investment from institutional investors.
c. listed private equity investment company shares cannot be held within an Individual Savings Account.
d. investment in private equity involves investing in high growth, unquoted companies.

A

a. private equity funds tend to invest in companies for between three and seven years.
b. most UK private equity funds seek to raise money for investment from institutional investors.
d. investment in private equity involves investing in high growth, unquoted companies.

SEE CHAPTER 1C4A

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59
Q 
What is obtained by multiplying the number of a company's shares in issue by their current market price?
Select one:
a. Market capitalisation.
b. Market weighting.
c. Credit rating.
d. Earnings per share.
A

a. Market capitalisation.

SEE CHAPTER 1C6B

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60
Q

In respect of Children’s Bonds from National Savings and Investments (NS&I):
Select one:
a. the interest is offered at a fixed rate for the whole term.
b. the interest is taxed on the parent if the interest exceeds £100 per year.
c. contributions can be made on behalf of anyone under the age of 18.
d. they become taxable if the child becomes a tax payer.

A

a. the interest is offered at a fixed rate for the whole term.

SEE CHAPTER 1A4C

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61
Q 
How much stamp duty, if any, would be payable on the purchase of £1,400 of UK-registered shares using a stock transfer form?
Select one:
a. Nil. 
b. £5.
c. £10.
d. £7.
A

c. £10.

SEE CHAPTER 1C2A

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62
Q

Victoria is considering letting a room in her main residence. What issues should she be aware of regarding ‘rent-a-room’ relief?

You must select ALL the correct options to gain the mark:

a. The tenant may only occupy one room.
b. There is only one exempt amount per residence.
c. She must occupy the property at the same time as her tenant.
d. The rent taken into account is the payment for the accommodation plus any payment for related goods and services.
e. If she receives gross rent of £8,000 in a year, she must claim relief and will have a tax bill.

A

b. There is only one exempt amount per residence.
c. She must occupy the property at the same time as her tenant.
d. The rent taken into account is the payment for the accommodation plus any payment for related goods and services.

SEE CHAPTER 1D6

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63
Q

Sam buys £20,000 worth of HSBC ordinary shares through a broker. Dave sells the same holding though another broker. Assuming commission rates are the same, it is TRUE to say that:
Select one:
a. only Sam will pay the Panel on Takeover and Mergers levy.
b. Sam will pay more to his broker than Dave receives back from his broker.
c. Sam will pay the same amount to his broker as Dave receives back from his broker.
d. only Dave will pay stamp duty or stamp duty reserve tax.

A

b. Sam will pay more to his broker than Dave receives back from his broker.

SEE CHAPTER 1C2A

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64
Q 
Mr and Mrs Evans hold £90,000 in a joint bank account with Lloyds Bank. In addition Mr Evans has £35,000 in a single account with Barclays and Mrs Evans has £55,000 in a single account with HSBC. The amount of protection that they have together under the Financial Services Compensation Scheme is:
Select one:
a. £140,000.
b. £180,000.
c. £120,000.
d. £175,000.
A

b. £180,000.

SEE CHAPTER 1A2A

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65
Q

Kenneth is studying the accounts of two companies and he is getting confused by the investment ratios. It is true to say that:

You must select ALL the correct options to gain the mark:

a. a low net asset value (NAV) per share indicates that the company is expensive.
b. a high dividend cover will lead to an increased dividend next year.
c. the lower the dividend cover the better.
d. you can establish the dividend cover from the earnings per share and the dividend per share.
e. a high price to earnings (P/E) ratio is normally a positive sign of the way in which the market is rating the company.

A

d. you can establish the dividend cover from the earnings per share and the dividend per share.
e. a high price to earnings (P/E) ratio is normally a positive sign of the way in which the market is rating the company.

SEE CHAPTER 1C5

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66
Q

In respect of a company’s dividend cover and what it represents, it is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. it is an indication of the riskiness of the investment.
b. dividend cover of less than 1 indicates that dividends have been paid out of reserves.
c. the higher the dividend cover, the less likely it is that the company will be able to pay dividends in future if profits fall.
d. it measures how many times the dividend could be paid out of current earnings.
e. a high dividend cover implies that the company is paying out most of its profits to shareholders.

A

a. it is an indication of the riskiness of the investment.
b. dividend cover of less than 1 indicates that dividends have been paid out of reserves.
d. it measures how many times the dividend could be paid out of current earnings.

SEE CHAPTER 1C5C

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67
Q

Simone owns unsecured stock in Masters Ltd. In the event of Masters Ltd being wound up, repayment of her investment:
Select one:
a. is guaranteed, provided there are no preference shareholders.
b. would rank alongside ordinary shareholders of the company.
c. is guaranteed, provided there are no secured creditors.
d. would rank alongside ordinary creditors of the company.

A

d. would rank alongside ordinary creditors of the company.

SEE CHAPTER 1B8A

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68
Q 
The Brown family comprises Mr and Mrs Brown and their three children aged 18, 16 and 13. Excluding Junior ISAs, what is the MAXIMUM that can be invested by the family in cash-based Individual Savings Accounts (ISAs) in 2018/19?
Select one:
a. £76,200.
b. £80,000. 
c. £60,960.
d. £100,000.
A

b. £80,000.

SEE CHAPTER 1A3E

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69
Q

Joshua is using investment ratios as the basis for making his next stock selection. It is CORRECT to say that:
Select one:
a. all firms use standard accounting policies.
b. this is always a good guide to future performance.
c. these work best when comparing similar companies.
d. this is the only data he should use to make his selection.

A

c. these work best when comparing similar companies.

SEE CHAPTER 1C5F

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70
Q

The differences between gilts and corporate bonds include:

You must select ALL the correct options to gain the mark:

a. the risk attaching to corporate bonds is generally higher than that attaching to gilts.
b. only gilts can be sold on the secondary market.
c. prices of gilts are typically less volatile than prices of corporate bonds.
d. yields on gilts are generally higher than corporate bonds.
e. the spread between buying and selling prices is generally wider for gilts than for corporate bonds.

A

a. the risk attaching to corporate bonds is generally higher than that attaching to gilts.
c. prices of gilts are typically less volatile than prices of corporate bonds.

SEE CHAPTER 1B8

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71
Q 
How much more stamp duty land tax will be paid by Dionne, who is buying a second holiday home for £375,000, than by Trevor, who is buying his first property for the same price?
Select one:
a. £20,000.
b. £6,000.
c. £11,250. 
d. £16,250.
A

d. £16,250.

SEE CHAPTER 1D3A

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72
Q

Connor directly owns an index-linked gilt, issued in 2010. This detail allows you to confirm that:

You must select ALL the correct options to gain the mark:

a. only his interest payment is adjusted in line with inflation.
b. the initial coupon would have been lower than for conventional stock.
c. his gilt uses the RPI rate three months prior to each payment date.
d. the full amount of interest received is taxable.
e. his gilt is liable to CGT on disposal at any time.

A

b. the initial coupon would have been lower than for conventional stock.
c. his gilt uses the RPI rate three months prior to each payment date.
d. the full amount of interest received is taxable.

SEE CHAPTER 1B7B

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73
Q

Zane, a higher rate taxpayer, owns a conventional gilt which he inherited from his father. It has 11 years remaining until redemption. He should be aware that:
Select one:
a. he will not be able to sell the gilt prior to its maturity.
b. the yield on the gilt will always be the same as the coupon.
c. if the coupon is above current interest rates, the bond should trade above par.
d. the price of the gilt will always rise as it reaches its maturity.

A

c. if the coupon is above current interest rates, the bond should trade above par.

SEE CHAPTER 1B4A

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74
Q

Max owns a number of cumulative preference shares. In terms of dividend payments and rights:
Select one:
a. he will receive a fixed and guaranteed dividend.
b. he may receive a fixed dividend and may also have voting rights.
c. he will never have voting rights.
d. his payment of dividends will rank behind ordinary share holders.

A

b. he may receive a fixed dividend and may also have voting rights.

SEE CHAPTER 1C3A

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75
Q

Akio has investments in Japanese companies. What would be the best indices to measure their performance against?

You must select ALL the correct options to gain the mark:

a. Topix.
b. Nikkei 225.
c. NASDAQ.
d. DAX 30.
e. Hang Seng.

A

a. Topix.
b. Nikkei 225.

SEE CHAPTER 1C6D

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76
Q

GreatInvest PLC is an established business, the share price of which has dramatically risen. Which two factors are MOST likely to have caused this?

You must select ALL the correct options to gain the mark:

a. A relatively upbeat assessment of future inflation rates.
b. A change in the company’s management.
c. Reported takeover activity.
d. An incremental increase in the dividends paid by GreatInvest PLC.
e. A relatively upbeat assessment of future trading conditions.

A

b. A change in the company’s management.
c. Reported takeover activity.

SEE CHAPTER 1C1

77
Q

Josh purchased a conventional gilt with a remaining term of 17 years via the secondary market 3 years ago for above par. It would be CORRECT to say that:

You must select ALL the correct options to gain the mark:

a. gilts are generally higher risk than corporate bonds.
b. he will make a capital loss if he holds the gilt to redemption.
c. the income will be variable.
d. the gilt would be now classed as medium.

A

b. he will make a capital loss if he holds the gilt to redemption.
d. the gilt would be now classed as medium.

SEE CHAPTER 1B7

78
Q

Kyle has £105,000 on deposit with a bank in the UK and £100,000 on deposit with a bank in Jersey. Under the UK Financial Services Compensation Scheme:

You must select ALL the correct options to gain the mark:

a. the deposits in Jersey are unprotected.
b. he is protected for a total of £85,000.
c. the deposits in the UK are unprotected.
d. he is protected for a total of £170,000.

A

a. the deposits in Jersey are unprotected.
b. he is protected for a total of £85,000.

SEE CHAPTER 1A2A

79
Q

Sean and Megan are letting out one of the rooms in their house to generate some extra income. It is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. they cannot include the charge for the laundry service they provide in the ‘rental’ amount.
b. subject to their consent, the room may be sublet by the tenant.
c. they can both claim the full tax-exempt amount of rent.
d. they must occupy the property at the same time as the tenant.
e. the maximum exempt amount of rent will not exceed £4,250.

A

b. subject to their consent, the room may be sublet by the tenant.
d. they must occupy the property at the same time as the tenant.

SEE CHAPTER 1D6

80
Q

Company A is considering offering corporate bonds to raise capital. It is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. the rate of interest will always be linked to a relevant money market rate.
b. they would not be restricted as to the number of bonds they could offer.
c. a corporate bond is a financial instrument representing debt.
d. bonds are often a company’s cheapest method of borrowing money.
e. they may offer secured or unsecured bonds.

A

b. they would not be restricted as to the number of bonds they could offer.
c. a corporate bond is a financial instrument representing debt.
d. bonds are often a company’s cheapest method of borrowing money.
e. they may offer secured or unsecured bonds.

SEE CHAPTER 1B

81
Q

Bethany is 17 years old and a UK resident. As far as Individual Savings Accounts (ISAs) are concerned, it is TRUE to say that in the current tax year she could:
Select one:
a. transfer some or all of a previous tax year’s cash based ISA to another cash based ISA at any time.
b. transfer an existing cash ISA to a stocks and shares ISA.
c. make a partial transfer of her current year’s cash ISA.
d. transfer an existing stocks and shares based ISA to a cash based ISA.

A

a. transfer some or all of a previous tax year’s cash based ISA to another cash based ISA at any time.

SEE CHAPTER 1A3E

82
Q 
An investor receives an interest yield of 4% on a £100 nominal value of stock for which he pays a clean price of £125. What is the coupon on this stock?
Select one:
a. 5%. 
b. 3.2%.
c. 3%.
d. 6.4%.
A

a. 5%.

SEE CHAPTER 1B4A

83
Q

Rajesh owns cumulative preference shares in a major retail company which has issued a profit warning. The impact on Rajesh’s investment is that:

You must select ALL the correct options to gain the mark:

a. any missed dividend payments will have to be made up in future years.
b. the company is obliged to pay a dividend half-yearly irrespective of its financial circumstances.
c. payment of dividends on his shares has priority over payment of dividends on ordinary shares.
d. his preference shares would rank below ordinary share capital in a liquidation.
e. he will be able to use his shares to vote against the management team at the AGM.

A

a. any missed dividend payments will have to be made up in future years.
c. payment of dividends on his shares has priority over payment of dividends on ordinary shares.

SEE CHAPTER 1C3A

84
Q

Mary is about to become an ordinary shareholder in her employer’s company which, as a part-owner of the company, will give her certain rights, APART from:
Select one:
a. the right to one vote for each share in the company she owns.
b. the right to vote at general meetings of the company and to elect the directors.
c. the right to share the company’s residual value on liquidation, after all debts and rights of shareholders with a prior claim.
d. the right to a fixed rate of dividend half yearly.

A

d. the right to a fixed rate of dividend half yearly.

SEE CHAPTER 1C3B

85
Q 
Erica has a buy-to-let property. The purchase price was £200,000 and associated costs of purchase were £30,000. The rental income is £800 per month with a 15% management fee. The headline GROSS yield is therefore:
Select one:
a. 3.55%.
b. 4.8%. 
c. 4.08%.
d. 4.17%.
A

b. 4.8%.

SEE CHAPTER 1D2

86
Q

Company A has a dividend cover of 2.2. Company B has a dividend cover of 0.8. All other things being equal, which statement is correct?
Select one:
a. The dividend of Company B is more secure.
b. Company B are more likely to increase their dividend by a greater percentage next year than Company A.
c. The reserves of Company A will have increased and the reserves of Company B will have decreased.
d. Both companies must have made a profit to have paid a dividend.

A

c. The reserves of Company A will have increased and the reserves of Company B will have decreased.

SEE CHAPTER 1C5C

87
Q

Juan is considering investing in Spanish fine wine as a long term investment. What would be a valid reason for avoiding this choice of investment?
Select one:
a. He does not have enough room in his own cellar to store it.
b. He requires a regular income from his investments.
c. Spanish wine has been a historic poor performer.
d. He wishes to use some of the investment for personal use.

A

b. He requires a regular income from his investments.

SEE CHAPTER 1E1

88
Q 
Which investment ratio best allows an investor to compare the income return on a share with the income return from bonds or deposits?
Select one:
a. Dividend yield.
b. Earnings per share.
c. Price earnings ratio.
d. Dividend cover.
A

a. Dividend yield.

SEE CHAPTER 1C5B

89
Q 
Alfred and Peter are having an argument about a company that is the 260th largest on the London Stock Exchange by market capitalisation. Alfred says it is in the FTSE 250 but Peter says it is not. They ask Frank to adjudicate who says the company is in the FTSE 350. Who is correct?
Select one:
a. Frank only. 
b. Alfred only.
c. Peter and Frank.
d. Alfred and Frank.
A

d. Alfred and Frank.

SEE CHAPTER 1C6B

90
Q

Fidel wants to understand about share indices and how the FTSE 100 index is arrived at. It is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. FTSE is weighted by market capitalisation.
b. the larger the company, the bigger the weighting in the index.
c. the price movement of a small company affects the index as much as that of a larger company.
d. the weightings of companies with less than 75% of shares available for public trading are reduced to reflect limited availability.

A

a. FTSE is weighted by market capitalisation.
b. the larger the company, the bigger the weighting in the index.
d. the weightings of companies with less than 75% of shares available for public trading are reduced to reflect limited availability.

SEE CHAPTER 1C6B

91
Q

Oliver purchases a holding of 4% Treasury Stock 2020 for £124 per £100 nominal. In respect of this stock it is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. the stock is priced above par because the coupon is higher than current interest rates.
b. the redemption yield will be more than 4%.
c. he will receive gross interest of £4.96 per annum per £100 nominal.
d. the interest yield is 3.23%.
e. he will make a capital loss if he holds the stock to redemption.

A

a. the stock is priced above par because the coupon is higher than current interest rates.
d. the interest yield is 3.23%.
e. he will make a capital loss if he holds the stock to redemption.

SEE CHAPTER 1B4

92
Q

Lenny is considering investing directly into property alongside his existing share portfolio. What drawbacks of direct property investment would you bring to his attention?

You must select ALL the correct options to gain the mark:

a. Property management costs can reduce yields.
b. Void periods will reduce yields.
c. Inflation risk.
d. Lack of liquidity.
e. High costs associated with initial purchase.

A

a. Property management costs can reduce yields.
b. Void periods will reduce yields.
d. Lack of liquidity.
e. High costs associated with initial purchase.

SEE CHAPTER 1D1A

93
Q

Amy is considering an investment into collectables. It would be INCORRECT to say that:
Select one:
a. the difference in the purchase price and resale value can be much greater than for conventional investments.
b. the price can be negatively affected by the discovery of reproductions.
c. historically, the price of collectibles has consistently tracked the rate of inflation.
d. this form of investment does not usually produce any income.

A

c. historically, the price of collectibles has consistently tracked the rate of inflation.

SEE CHAPTER 1E1A

94
Q

Company A has a much higher price to earnings ratio than company B. They are in the same sector. This indicates that:
Select one:
a. company A is a better buy than company B.
b. company B is better value.
c. company A is more highly rated by the market.
d. company B is more highly rated by the market.

A

c. company A is more highly rated by the market.

SEE CHAPTER 1C5D

95
Q

PQR Plc has issued commercial bills. This is MOST likely to help the company:
Select one:
a. fund their long-term liabilities.
b. receive inward investment from overseas.
c. fund their day-to-day cash flows.
d. increase their appeal in the equity market.

A

c. fund their day-to-day cash flows.

SEE CHAPTER 1A5B

96
Q 
An investor receives an interest yield of 3.2% on a £100 nominal value of stock for which he pays a clean price of £125. What is the coupon on this stock?
Select one:
a. 3.2%.
b. 4%. 
c. 2.56%.
d. 5.12%.
A

b. 4%.

SEE CHAPTER 1B4A

97
Q

Inez wants to invest some of her money in an income-producing National Savings and Investment (NS&I) product. Her adviser might have suggested that NS&I Income Bonds are more suitable for her than NS&I Guaranteed Income Bonds because she:
Select one:
a. wants to receive her interest monthly.
b. prefers a fixed rate of interest.
c. prefers a variable rate of interest.
d. wants a fixed term product.

A

c. prefers a variable rate of interest.

SEE CHAPTER 1A4

98
Q

What has been the MAIN reason for the sharp rise in commodity prices in recent years?
Select one:
a. A rise in the number of cartels in producing countries.
b. Increased demand for raw materials in developing countries.
c. Increased unionisation in the developing economies.
d. A series of natural disasters.

A

b. Increased demand for raw materials in developing countries.

SEE CHAPTER 1E2

99
Q 
In May 2017 Stuart paid £12,500 for £10,000 nominal value of Treasury 5% 2028. How much interest will he receive from this stock every six months?
Select one:
a. £312.50.
b. £625. 
c. £500.
d. £250.
A

d. £250.

SEE CHAPTER 1B1A

100
Q 
Which type of gilt would be expected to show the GREATEST price volatility?
Select one:
a. 5% Treasury 2031.
b. 5% Treasury 2033.
c. 4% Treasury 2020.
d. 4% Treasury 2033.
A

d. 4% Treasury 2033.

SEE CHAPTER 1B5D

101
Q

Edith has just purchased her first buy-to-let property. She is unsure as to the nature of the shorthold lease she should let the property under. You inform her that:
Select one:
a. the minimum period is six months, but she should aim for as long a rental agreement as possible to enhance the property value.
b. the minimum period is six months but she should avoid long rental agreements so as not to depress the property value.
c. there is no minimum period, but she should aim for as long a rental agreement as possible to enhance the property value.
d. there is no minimum period but she should avoid long rental agreements so as not to depress the property value.

A

d. there is no minimum period but she should avoid long rental agreements so as not to depress the property value.

SEE CHAPTER 1D1C

102
Q

Sarah is interested in commodity investment but is confused by the terminology. It is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. both hard and soft commodities can suffer from supply and demand issues.
b. soft commodities are scarce resources like natural gas and crude oil.
c. hard commodities are usually mined not grown.
d. crude oil is a soft commodity as is natural gas.
e. gold is a hard commodity which tends to keep pace with inflation.

A

a. both hard and soft commodities can suffer from supply and demand issues.
c. hard commodities are usually mined not grown.
e. gold is a hard commodity which tends to keep pace with inflation.

SEE CHAPTER 1E2

103
Q 
Hope Limited have 35 million ordinary shares in issue and a turnover of £5.6 million. The price to earnings (P/E) ratio is 5 and the current share price is £15. What is the earnings per share?
Select one:
a. £2.68.
b. £3. 
c. £2.33.
d. £6.25.
A

b. £3.

SEE CHAPTER 1C5D

104
Q

Julie has received a dividend recently from her preference shares. It is likely that:

You must select ALL the correct options to gain the mark:

a. she will not have voting rights in the company.
b. any future dividends will be guaranteed.
c. future dividends will increase in value.
d. the dividend paid will usually be higher than from a corporate bond from the same company.

A

a. she will not have voting rights in the company.
d. the dividend paid will usually be higher than from a corporate bond from the same company.

SEE CHAPTER 1C3A

105
Q

Maggie wishes to let a room in her main residence. Assuming the room isn’t sub-let, it is CORRECT to say that:
Select one:
a. she will be able to claim £7,500 rent-a-room relief.
b. she will be able to claim £4,250 rent-a-room relief.
c. the rooms do not need to be furnished.
d. the rent-a-room relief is only available if Maggie does not occupy the house herself.

A

a. she will be able to claim £7,500 rent-a-room relief.

SEE CHAPTER 1D6

106
Q

Alex is considering investing into a cash based Individual Savings Account. Which investments could meet his requirements?

You must select ALL the correct options to gain the mark:

a. Stakeholder cash deposit products.
b. Shares in open ended investment companies which are money market schemes.
c. Fixed rate accounts with a bank.
d. Units in a unit trust investing in bonds and other fixed interest securities.

A

a. Stakeholder cash deposit products.
b. Shares in open ended investment companies which are money market schemes.
c. Fixed rate accounts with a bank.

SEE CHAPTER 1A3E

107
Q

Helen’s parents are planning to invest £3,000 into a National Savings & Investments Children’s Bond in her name on her 13th birthday. Should Helen wish to encash this investment on her 17th birthday she should be aware that the amount she will receive will be equal to:
Select one:
a. the original capital invested plus 4/5ths of the interest earned to the date of encashment.
b. the original capital invested plus interest earned to the date of encashment less a penalty equivalent to 90 days’ interest on the amount cashed in.
c. the original capital invested plus all interest earned to the date of encashment plus 4/5ths of the possible five-year bonus.
d. the original capital only.

A

b. the original capital invested plus interest earned to the date of encashment less a penalty equivalent to 90 days’ interest on the amount cashed in.

SEE CHAPTER 1A4C

108
Q

Mark wants to understand more about the FTSE 350. It is TRUE to say that it is made up of:
Select one:
a. the next largest 350 companies after the constituents of the FTSE 100 and FTSE 250 indices.
b. the smallest 350 companies in the UK.
c. a combination of the FTSE 100 and FTSE 250 indices.
d. the most profitable 350 companies in the UK.

A

c. a combination of the FTSE 100 and FTSE 250 indices.

SEE CHAPTER 1C6B

109
Q

David is purchasing a residential and a commercial property for £1.5 million each. He is not a first time buyer. It is CORRECT to say that:

You must select ALL the correct options to gain the mark:

a. the total stamp duty will be £158,250.
b. any stamp duty is due immediately after completion.
c. he will not need to pay stamp duty on the subsequent sale of either property.
d. there will be estate agent fees to pay in addition to any stamp duty.

A

a. the total stamp duty will be £158,250.
c. he will not need to pay stamp duty on the subsequent sale of either property.

SEE CHAPTER 1D3A

110
Q

If the dividend remains unchanged but the earnings per share goes down, resulting in a fall in share price, it is TRUE to say that:
Select one:
a. both the dividend cover and the dividend yield will increase.
b. both the dividend cover and the dividend yield will reduce.
c. the dividend cover will reduce but the dividend yield will increase.
d. the dividend cover will increase but the dividend yield will reduce.

A

c. the dividend cover will reduce but the dividend yield will increase.

SEE CHAPTER 1C5A

111
Q 
Company A has an earnings per share of 12p and a dividend cover of 2.4. If its share price is £1.25 per share, what is the dividend yield?
Select one:
a. 9.6%. 
b. 2%.
c. 23%.
d. 4%.
A

d. 4%.

SEE CHAPTER 1C5B/C

112
Q 
An investment property is purchased for £210,000 with transaction costs of £4,000. If the rental income is £850 per month with 15% of the rent set aside to cover general expenses, the net rental yield will be:
Select one:
a. 4.85%.
b. 4.77%. 
c. 4.13%.
d. 4.05%.
A

d. 4.05%.

SEE CHAPTER 1D2

113
Q

ZYX Plc have decided to issue debentures. It is TRUE to say that:

You must select ALL the correct options to gain the mark:

a. ZYX Plc can secure the debentures on the value of land owned by the company.
b. there will be no redemption date attached to the debentures.
c. ZYX Plc can secure the debentures on a general charge over any of the company’s assets.
d. the debentures will be established by trust deed.
e. ZYX Plc will pay a floating coupon on the debentures.

A

a. ZYX Plc can secure the debentures on the value of land owned by the company.
c. ZYX Plc can secure the debentures on a general charge over any of the company’s assets.
d. the debentures will be established by trust deed.

SEE CHAPTER 1B8B

114
Q 
Graham has a gilt where the clean price is £95, the coupon is 5% and the time to redemption is 10 years. It is CORRECT to say that the:
Select one:
a. running yield is 4.75%.
b. redemption yield is 5.76%.
c. running yield is 5%.
d. redemption yield is 5.26%.
A

b. redemption yield is 5.76%.

SEE CHAPTER 1B4B

115
Q 
An estate agent sold three non-residential properties for £130,000, £400,000 and £1,200,000 during the last week. How much stamp duty land tax will be payable in total on these transactions, assuming that none of them were sold to first time buyers or commercial enterprises and none were second properties?
Select one:
a. £59,000.
b. £72,000.
c. £73,300. 
d. £61,300.
A

a. £59,000.

SEE CHAPTER 1D3A

116
Q

David has a share portfolio including both ordinary and preference shares. He should be aware that:

You must select ALL the correct options to gain the mark:

a. preference shares generally have no voting rights.
b. the payment of dividends on ordinary shares has priority over payment of dividends on preference shares.
c. non-cumulative preference shares do not normally have voting rights.
d. ordinary shares rank above preference shares in a liquidation.
e. preference shares usually pay a fixed dividend whereas ordinary shares pay a variable dividend.

A

a. preference shares generally have no voting rights.
c. non-cumulative preference shares do not normally have voting rights.
e. preference shares usually pay a fixed dividend whereas ordinary shares pay a variable dividend.

SEE CHAPTER 1C3

117
Q

Nico is deciding whether to purchase preference shares. He should be aware that:

You must select ALL the correct options to gain the mark:

a. the yields are typically higher than those of bonds.
b. a dividend will only be paid if the company has sufficient after-tax profits.
c. the dividend payment has priority over the payment of dividends on ordinary shares.
d. in liquidation they rank ahead of all other creditors.
e. they will provide him with voting rights.

A

a. the yields are typically higher than those of bonds.
b. a dividend will only be paid if the company has sufficient after-tax profits.
c. the dividend payment has priority over the payment of dividends on ordinary shares.

SEE CHAPTER 1C3A

118
Q 
BWL Limited has 10 million ordinary shares in issue and a turnover of £3.5 million. The net profit for the financial year is £2.2 million and it pays £200,000 to preference shareholders. The earnings per share is:
Select one:
a. £1.59.
b. £0.20. 
c. £0.22.
d. £0.35.
A

b. £0.20.

SEE CHAPTER 1C5A

119
Q

Changes to the constituent companies of the FTSE 100 index can be prompted by:

You must select ALL the correct options to gain the mark:

a. new listings on the exchange.
b. European directives.
c. mergers and acquisitions.
d. increases in market capitalisation.
e. intervention by the Bank of England.

A

a. new listings on the exchange.
c. mergers and acquisitions.
d. increases in market capitalisation.

SEE CHAPTER 1C6B

120
Q

Mavis has her savings in a building society instant access account. Which potential risks is she MOST likely to face?

You must select ALL the correct options to gain the mark:

a. Liquidity risk.
b. Default risk.
c. Inflation risk.
d. Interest rate risk.
e. Event risk.

A

b. Default risk.
c. Inflation risk.
d. Interest rate risk.

SEE CHAPTER 1A2

121
Q 
Tom is aged 16. His parents give him £5,000 each allowing him to invest in his first cash based Individual Savings Account (ISA). What is the MAXIMUM rate of interest which he can receive from the ISA in the full tax year to ensure no tax becomes payable?
Select one:
a. 2%. 
b. 1%.
c. 1.25%.
d. 2.25%.
A

a. 2%.

SEE CHAPTER 1A3E

122
Q

When deciding whether to purchase shares in company X and shares in company Y, Tania notices that although their share prices and the dividends they are currently paying are similar, Company X has a much higher dividend cover. This would suggest that company:

You must select ALL the correct options to gain the mark:

a. X is retaining more of its earnings for re-investment in the company.
b. Y is the safer investment of the two.
c. Y must have drawn on its reserves to pay its dividend.
d. X is more likely to be able to maintain the current level of dividend if profits fall next year.
e. Y offers the greater opportunity for growth in the share value.

A

a. X is retaining more of its earnings for re-investment in the company.
d. X is more likely to be able to maintain the current level of dividend if profits fall next year.

SEE CHAPTER 1C5C

123
Q 
Nigel has just purchased the lease on a premises for £300,000. The lease was for 15 years with an annual ground rent of £10,000 and the net present value is £115,000. The stamp duty land tax will therefore be:
Select one:
a. £9,000.
b. £1,500.
c. nil. 
d. £50.
A

c. nil.

SEE CHAPTER 1D3B

124
Q

Marion is interested in investing in coffee. Assuming that she does not wish to invest directly, there are a number of alternative ways in which she could invest, which include to:

You must select ALL the correct options to gain the mark:

a. invest in funds that specialise in commodities.
b. invest in Enterprise Investment Schemes.
c. invest in exchange-traded commodities.
d. buy government securities from coffee-producing countries.
e. buy shares in companies that produce coffee.

A

a. invest in funds that specialise in commodities.
c. invest in exchange-traded commodities.
e. buy shares in companies that produce coffee.

SEE CHAPTER 1E2

125
Q

Cumulative preference shares in ZYX Plc have been in existence for ten years and no dividends have been paid for the last four. What is the situation regarding this year’s potential dividend payments on ordinary shares?
Select one:
a. Only the previous accounting year’s preference share arrears needs to be paid before a dividend can be declared on the ordinary shares.
b. All preference share arrears must be paid before a dividend can be declared on the ordinary shares.
c. No dividends can ever be declared on ordinary shares when cumulative preference shares exist.
d. No preference share arrears need be paid before a dividend can be declared on the ordinary shares.

A

b. All preference share arrears must be paid before a dividend can be declared on the ordinary shares.

SEE CHAPTER 1C3A

126
Q 
ABC plc has raised finance by not going to a traditional lender. The security they have offered for the loan could be sold at any time. It is therefore TRUE to say that ABC have issued:
Select one:
a. commercial paper bills with security.
b. a fixed charge debenture.
c. permanent interest bearing shares.
d. a floating charge debenture.
A

d. a floating charge debenture.

SEE CHAPTER 1B8B

127
Q

Imelda is interested in art as an investment. What is MOST likely to be her reason for this?
Select one:
a. When she disposes of the item it will be subject to CGT at 10%.
b. She is an additional rate taxpayer and wants to avoid further income tax liabilities.
c. She is a non-taxpayer and wants to avoid income tax liabilities.
d. The low costs involved of purchase and sale.

A

b. She is an additional rate taxpayer and wants to avoid further income tax liabilities.

SEE CHAPTER 1E1

128
Q

Dan and Joyce have £170,000 in a joint UK deposit account, and £150,000 in a joint account in a French bank which is a fully owned subsidiary of a UK bank. How does the Financial Services Compensation Scheme (FSCS) operate in connection with their accounts?
Select one:
a. Presently, both accounts would be covered in full.
b. The maximum level of compensation is £85,000.
c. The maximum level of compensation is £170,000.
d. The FSCS does not cover the French account.

A

a. Presently, both accounts would be covered in full.

SEE CHAPTER 1A2A

129
Q

Dwaine is planning to invest in a cash based Individual Savings Account. His options include:

You must select ALL the correct options to gain the mark:

a. shares in an open ended investment company investing in bonds and money market instruments.
b. shares in unit trusts which are money market schemes.
c. savings accounts with a bank.
d. stakeholder cash deposit products.
e. a life assurance policy that is likely to return at least 75% of the investor’s original capital within 5 years of the investment date.

A

b. shares in unit trusts which are money market schemes.
c. savings accounts with a bank.
d. stakeholder cash deposit products.

SEE CHAPTER 1A3E

130
Q

James lives in a two bedroom flat and is considering letting his spare bedroom to a friend for a fixed amount per week inclusive of all expenses. In order to qualify for ‘rent-a-room’ relief he MUST:

You must select ALL the correct options to gain the mark:

a. ensure the net rent he receives does not exceed £7,500 per tax year.
b. provide his tenant with a written tenancy agreement and a rent book.
c. rent the room out on a furnished basis.
d. occupy the property at the same time as his tenant.
e. not charge for any additional services.

A

c. rent the room out on a furnished basis.
d. occupy the property at the same time as his tenant.

SEE CHAPTER 1D6

131
Q

Jon would like to calculate the stamp duty land tax on a commercial property he is planning to lease. The factors that he will take into account in the calculation include:

You must select ALL the correct options to gain the mark:

a. the location of the property on a trading estate.
b. the 10 year term of the lease.
c. the property value of £250,000.
d. the annual rent amount of £15,000.
e. a relevant inflation rate.

A

b. the 10 year term of the lease.
d. the annual rent amount of £15,000.
e. a relevant inflation rate.

SEE CHAPTER 1D3B

132
Q

Mya is considering her first direct purchase of a corporate bond. When deciding which bond to purchase she should keep in mind that:

You must select ALL the correct options to gain the mark:

a. where the interest yield is less than the redemption yield there will be a capital loss if she holds the bond until its redemption date.
b. future interest rate falls will typically cause bond prices to rise.
c. the redemption yield assumes that Mya will reinvest each interest payment in the same stock at the same redemption yield.
d. the redemption yield allows Mya to compare bonds on a common basis.
e. future interest rate rises will typically cause bond prices to rise.

A

b. future interest rate falls will typically cause bond prices to rise.
c. the redemption yield assumes that Mya will reinvest each interest payment in the same stock at the same redemption yield.
d. the redemption yield allows Mya to compare bonds on a common basis.

SEE CHAPTER 1B4

133
Q

Ally is buying her first UK residential property for £335,000. She will incur a number of expenses, including:

You must select ALL the correct options to gain the mark:

a. capital gains tax.
b. solicitor fees.
c. estate agent fees.
d. cost of survey.
e. stamp duty land tax.

A

b. solicitor fees.
d. cost of survey.
e. stamp duty land tax.

SEE CHAPTER 1D2

134
Q

Joan has just purchased her first buy-to-let property and is negotiating a 5 year rental agreement with the existing tenant. She should be aware that this length of agreement:
Select one:
a. is not allowed under UK law.
b. may help depress the property’s value.
c. may help increase the property’s value.
d. must always include rent reviews.

A

b. may help depress the property’s value.

SEE CHAPTER 1D1C

135
Q

ZYX Plc has a dividend cover figure of 0.6. This indicates that:
Select one:
a. the market is pessimistic about the company’s future growth in earnings.
b. the company is retaining the majority of its earnings for reinvestment in the business.
c. the company is clearly able to maintain the existing dividend if profits fall in the future.
d. the company is drawing on reserves to pay its dividends.

A

d. the company is drawing on reserves to pay its dividends.

SEE CHAPTER 1C5C

136
Q 
Jan is considering purchasing a property to let. The purchase price will be £190,000 and she anticipates additional expenses of £5,000. The property has a potential rental return of £1,000 per month and Jan expects management expenses to be 15% of the rent. What is Jan's anticipated net rental yield?
Select one:
a. 5.51%.
b. 7.07%.
c. 6.32%.
d. 5.23%.
A

d. 5.23%.

SEE CHAPTER 1D2

137
Q

Gabby owns a conventional gilt while Cilla owns a corporate bond. The investments are different because:

You must select ALL the correct options to gain the mark:

a. the yield on Gabby’s gilt will generally be lower than Cilla’s corporate bond.
b. the spread between the buying and selling price is likely to be wider for Cilla’s corporate bond.
c. Cilla’s corporate bond is generally deemed to have a higher risk than Gabby’s gilt.
d. Gabby’s gilt will typically be more volatile than Cilla’s corporate bond.
e. only Gabby’s gilt will be exempt from capital gains tax.

A

a. the yield on Gabby’s gilt will generally be lower than Cilla’s corporate bond.
b. the spread between the buying and selling price is likely to be wider for Cilla’s corporate bond.
c. Cilla’s corporate bond is generally deemed to have a higher risk than Gabby’s gilt.

SEE CHAPTER 1B3C/B7/B8

138
Q

Santi is looking to make a deposit with a UK building society. A notice account differs from a term deposit account in that it will typically:
Select one:
a. allow greater access throughout the term of the savings.
b. have no penalties for instant access to the amount deposited.
c. be based on the returns available from some stock market index.
d. require savings to be deposited for a fixed term.

A

a. allow greater access throughout the term of the savings.

SEE CHAPTER 1A3B

139
Q

What would be the main factors a potential investor would consider before buying a property with the intention of letting it?

You must select ALL the correct options to gain the mark:

a. If you buy properties in the same area this could result in concentration risk.
b. The quality of the tenant expected as that could impact the yield.
c. Location within a town is not important, it’s the location of the town that matters.
d. Newer properties are usually more attractive for renting.

A

a. If you buy properties in the same area this could result in concentration risk.
b. The quality of the tenant expected as that could impact the yield.
d. Newer properties are usually more attractive for renting.

SEE CHAPTER 1D1

140
Q 
Larry, a private investor, would like to include commercial bills in his portfolio. How could he achieve this?
Select one:
a. Submit a bid at the issuing auction.
b. Apply direct to the issuing company. 
c. Buy units in a money market fund.
d. Deal through a stockbroker.
A

c. Buy units in a money market fund.

SEE CHAPTER 1A5C

141
Q

When calculating the price earnings ratio for a company, it is necessary to take into account the:

You must select ALL the correct options to gain the mark:

a. net dividend.
b. dividend cover.
c. current share price.
d. dividend yield.
e. earnings per share.

A

c. current share price.
e. earnings per share.

SEE CHAPTER 1C5D

142
Q 
Nigel and Emma are higher and additional rate tax payers respectively and they have both received a dividend of £1,800 from ordinary shares. Assuming that both of them have already used their dividend allowance, how much more income tax will Emma pay than Nigel?
Select one:
a. £100.80. 
b. £180.
c. £135.50.
d. £90.
A

a. £100.80.

SEE CHAPTER 1C3B

143
Q

Out of all of the shares in Mitchell’s portfolio, the only types where he can be sure he will have voting rights are:

You must select ALL the correct options to gain the mark:

a. deferred ordinary shares.
b. ordinary shares.
c. cumulative preference shares when dividend payments are in arrears.
d. participating preference shares.
e. ‘A’ ordinary shares.

A

a. deferred ordinary shares.
b. ordinary shares.
c. cumulative preference shares when dividend payments are in arrears.

SEE CHAPTER 1C3

144
Q

Edith, 42, is looking for a savings account offered by National Savings & Investments. Her choice includes:

You must select ALL the correct options to gain the mark:

a. Investment Guaranteed Growth Bond.
b. Investment account.
c. Easy Access Savings Account.
d. Direct Saver Account.
e. Index-linked Savings Certificates.

A

b. Investment account.
d. Direct Saver Account.

SEE CHAPTER 1A4

145
Q

Jenny has £75,000 in an NS&I Guaranteed Income Bond. It would be TRUE to say that:
Select one:
a. the maximum she could have invested would be a further £25,000.
b. the money is tied up for at least three years.
c. she receives a fixed rate of interest.
d. interest is paid gross, either quarterly or monthly.

A

c. she receives a fixed rate of interest.

SEE CHAPTER 1A4G

146
Q

Company X has a share price of £2.20 and a net asset value of £1.80. This is MOST likely to indicate that:
Select one:
a. investors are willing to pay a premium for the goodwill inherent in the business.
b. the company is in danger of going into liquidation.
c. a takeover bid has been made for the company.
d. demand for the shares is lower than the sector average.

A

a. investors are willing to pay a premium for the goodwill inherent in the business.

SEE CHAPTER 1C5E

147
Q

Simon is considering purchasing an index linked gilt. He should be aware that:

You must select ALL the correct options to gain the mark:

a. prospective redemption yields are currently quoted in the financial press assuming a 3% inflation rate.
b. both the interest payments and the capital repayment at redemption are adjusted in line with the changes in the Retail Prices Index.
c. if the Retail Prices Index falls the interest and capital payments will remain level.
d. a gilt issued during or after September 2005 increases payments by the Retail Prices Index figure applicable four months prior to each payment date.
e. the coupon and yields tend to be much lower than those applicable to conventional stock.
f. the full amount of interest received will be taxable, excluding any inflation uplift.

A

a. prospective redemption yields are currently quoted in the financial press assuming a 3% inflation rate.
b. both the interest payments and the capital repayment at redemption are adjusted in line with the changes in the Retail Prices Index.
e. the coupon and yields tend to be much lower than those applicable to conventional stock.

SEE CHAPTER 1B7B

148
Q 
An investment manager recently completed three UK-registered share purchases on the same day using the following methods: Stock transfer form for £5,450; CREST for £4,350; Stock transfer form for £3,875. What is the total combined amount of stamp duty and stamp duty reserve tax payable on these transactions?
Select one:
a. £71.63.
b. £68.38.
c. £60. =
d. £71.75.
A

d. £71.75.

SEE CHAPTER 1C2A

149
Q

Vinesh is considering buying a corporate bond on the secondary market. The title of each bond will always provide him with information about the:

You must select ALL the correct options to gain the mark:

a. issue date.
b. name of the first owner.
c. redemption date.
d. coupon.
e. issuer’s name.

A

c. redemption date.
d. coupon.
e. issuer’s name.

SEE CHAPTER 1B1A

150
Q

Amir is an investor planning to invest in works of art and collectables. He should be aware that:

You must select ALL the correct options to gain the mark:

a. specialist knowledge may be needed to buy successfully.
b. their value is dependent on limited supply and fluctuating demand.
c. they usually do not generate any form of income or financial return.
d. some markets are dominated by a small number of buyers and sellers.
e. prices are generally relatively stable and rise in line with inflation.
f. the difference between buying and selling prices is usually less than for conventional investments.

A

a. specialist knowledge may be needed to buy successfully.
b. their value is dependent on limited supply and fluctuating demand.
c. they usually do not generate any form of income or financial return.
d. some markets are dominated by a small number of buyers and sellers.

SEE CHAPTER 1E1

151
Q

Treasury bills are designed to:
Select one:
a. fund long term lending needs for the Treasury.
b. fund short term lending needs of the Government.
c. fill product gaps for restricted advisers.
d. make medium risk products available to the market place.

A

b. fund short term lending needs of the Government.

SEE CHAPTER 1A5B

152
Q 
A fund manager is looking at the credit rating of four bonds. His mandate allows him to invest in investment grade bonds only. Which one can he NOT select?
Select one:
a. Moody's Baa 1.
b. Moody's Baa 3.
c. Standard & Poor's BBB+.
d. Standard & Poor's BB+.
A

d. Standard & Poor’s BB+.

SEE CHAPTER 1B5B

153
Q 
Lucy has recently completed the purchase of her first property, a flat, for £200,000 that she intends to live in. She will also shortly complete on the purchase of a non-residential property for £150,000 from which she intends to run her business. How much stamp duty land tax will be due in respect of both of these transactions?
Select one:
a. Nil. 
b. £2,000.
c. £1,500.
d. £4,500.
A

a. Nil.

SEE CHAPTER 1D3A

154
Q

A national supermarket chain is issuing corporate bonds, as is a much smaller chain of convenience stores. When compared, it is MORE likely that the supermarket will have the:
Select one:
a. lower credit rating and the yield of the convenience store chain will be lower.
b. higher credit rating and the yield of the convenience store chain will be higher.
c. lower credit rating and the yield of the convenience store chain will be higher.
d. higher credit rating and the yield of the convenience store chain will be lower.

A

b. higher credit rating and the yield of the convenience store chain will be higher.

SEE CHAPTER 1B5B

155
Q 
Jacob is looking for a suitable stock index to benchmark his portfolio of American shares. Which of these would be LEAST appropriate?
Select one:
a. NASDAQ Composite. 
b. S&P All Ordinaries.
c. Dow Jones Industrial Average.
d. S&P500.
A

b. S&P All Ordinaries.

SEE CHAPTER 1C6D

156
Q

An investor is considering four different types of bond which his stock broker has recommended. Which of them would be the LEAST volatile?
Select one:
a. Redeemable in 3 years, paying a coupon of 8%.
b. Redeemable in 15 years, paying a coupon of 8%.
c. Redeemable in 15 years, paying a coupon of 3%.
d. Redeemable in 3 years, paying a coupon of 3%.

A

a. Redeemable in 3 years, paying a coupon of 8%.

SEE CHAPTER 1B5D

157
Q

Gemma is selling £12,000 of shares through CREST. It is likely that she will incur costs such as:

You must select ALL the correct options to gain the mark:

a. the Financial Services Compensation Scheme levy.
b. Panel on Takeovers and Mergers levy.
c. commission.
d. auditors’ fees.
e. stamp duty. Incorrect

A

b. Panel on Takeovers and Mergers levy.
c. commission.

SEE CHAPTER 1C2A

158
Q

Rachel, a higher rate taxpayer, is considering investing £100,000 in permanent interest bearing shares (PIBS). She should be aware that:

You must select ALL the correct options to gain the mark:

a. she would receive £85,000 from the Financial Services Compensation Scheme in the event of default.
b. they rank behind depositors but before other creditors in a liquidation.
c. If each income payment is £5,000, she will have an annual tax liability of £4,000.
d. the issuer has no obligation to redeem the PIBS.
e. they are within the definition of ‘qualifying corporate bonds’ and are therefore exempt from capital gains tax.

A

c. If each income payment is £5,000, she will have an annual tax liability of £4,000.
d. the issuer has no obligation to redeem the PIBS.
e. they are within the definition of ‘qualifying corporate bonds’ and are therefore exempt from capital gains tax.

SEE CHAPTER 1B11

159
Q

When investing in property, void periods will tend to:

You must select ALL the correct options to gain the mark:

a. have a detrimental effect on overall income.
b. increase the expenses.
c. outweigh occupied periods.
d. decrease the property value.
e. decrease the rental yield.

A

a. have a detrimental effect on overall income.
e. decrease the rental yield.

SEE CHAPTER 1D2

160
Q 
Adam has purchased shares for £12,000, while Bill has sold shares for £12,000. The total amount paid to the Panel on Takeovers and Mergers as a result of these transactions is:
Select one:
a. £1.
b. £60.
c. £2. 
d. £120.
A

c. £2.

SEE CHAPTER 1C2A

161
Q

Lizzie is considering purchasing her first residential buy-to-let property. What factors would she be advised to take into account?

You must select ALL the correct options to gain the mark:

a. Void periods, as they will cause yields to increase.
b. The availability of tenants.
c. The type of tenant she is planning to attract.
d. The age of the property, since older properties are more attractive for renting.
e. The location of the property.

A

b. The availability of tenants. Correct
Correct, chapter reference 1D1B
c. The type of tenant she is planning to attract.
e. The location of the property.

SEE CHAPTER 1D1B

162
Q

Terri and Shirley are both higher rate taxpayers. Terri owns participating preference shares whereas Shirley owns ordinary shares, which means that ONLY Terri will:
Select one:
a. receive a dividend based on the profits of the company.
b. have to pay additional tax on dividends received.
c. have voting rights attached to her shares.
d. receive a fixed dividend.

A

d. receive a fixed dividend.

SEE CHAPTER 1C3A

163
Q

Vincent is considering making an investment in index-linked gilts. He should be aware that the index-linking applies to:
Select one:
a. alternate interest payments and capital repayment at redemption.
b. capital repayment at redemption only.
c. all interest payments and capital repayment at redemption.
d. interest payments only.

A

c. all interest payments and capital repayment at redemption.

SEE CHAPTER 1B7B

164
Q 
Ivan and Cyril are discussing a company which is the 370th largest listed on the London Stock Exchange by market capitalisation. Ivan thinks it is in the FTSE All-share index but Cyril disagrees, saying it is in the FTSE Small Cap index. Who is correct?
Select one:
a. Both Ivan and Cyril.
b. Neither Ivan nor Cyril. 
c. Cyril only.
d. Ivan only.
A

a. Both Ivan and Cyril.

SEE CHAPTER 1C6B

165
Q

The average price earnings (P/E) ratio for a sector is 7.5. Within this sector share A has a P/E ratio of 8.1 and share B has a P/E ratio of 6.2. This indicates that:
Select one:
a. share A is more favoured by investors than share B.
b. share A is significantly overpriced.
c. share B has higher growth prospects that share A.
d. share B will provide better value than share A.

A

a. share A is more favoured by investors than share B.

SEE CHAPTER 1C5D

166
Q

Charles intends to build up a portfolio of buy-to-let properties. What potential DISADVANTAGES of this type of investment would you make Charles aware of?

You must select ALL the correct options to gain the mark:

a. A higher rate of capital gains tax (CGT) applies than for other investment types.
b. Values will fluctuate according to inflation.
c. Sale and purchase can be expensive.
d. On sale the annual capital gains tax (CGT) exemption cannot be used to reduce CGT.
e. Void periods will cause yields to decrease.

A

a. A higher rate of capital gains tax (CGT) applies than for other investment types.
c. Sale and purchase can be expensive.
e. Void periods will cause yields to decrease.

SEE CHAPTER 1D1A

167
Q 
A higher rate taxpayer invests £50,000 in gilts. Within two years, their value has increased to £60,000 and he sells the gilts. Assuming that he has used his annual capital gains tax (CGT) exemption, how much CGT, if any, will be due on this transaction?
Select one:
a. Nil. 
b. £1,800.
c. £2,800.
d. £2,000.
A

a. Nil.

SEE CHAPTER 1B4B

168
Q

When analysing a company using the price earnings (P/E) ratio, a potential investor should be aware that:

You must select ALL the correct options to gain the mark:

a. a high P/E ratio is an indication of good growth prospects.
b. a higher than average P/E ratio would indicate a low demand for the shares.
c. the P/E ratio is based on the relationship between the profits and the earnings per share.
d. the higher the earnings per share, the lower the P/E ratio, assuming a constant share price.
e. P/E ratios should only be used to compare companies in the same sector.

A

a. a high P/E ratio is an indication of good growth prospects.
d. the higher the earnings per share, the lower the P/E ratio, assuming a constant share price.
e. P/E ratios should only be used to compare companies in the same sector.

SEE CHAPTER 1C5D

169
Q 
Sean is an experienced investor whose portfolio comprises wholly of UK based shares. He now wishes to diversify and is looking for an investment that will show the least possible correlation to his existing portfolio, whilst still offering him the opportunity for reasonable long term returns. What is the investment class that will BEST achieve this?
Select one:
a. Overseas equities. 
b. Fixed Interest.
c. Cash.
d. Property.
A

d. Property.

SEE CHAPTER 1D

170
Q 
A limited company has 20,000 ordinary shares in issue and £4,000 available for distribution as net dividends. The current share price is 110p. What is the dividend yield?
Select one:
a. 36.36%.
b. 18.18%.
c. 4%. 
d. 20%.
A

b. 18.18%.

SEE CHAPTER 1C5B

171
Q 
Erin has purchased £8,500 of UK-registered shares through CREST. How much stamp duty reserve tax would be payable?
Select one:
a. £45.
b. £85. 
c. £106.25.
d. £42.50.
A

d. £42.50.

SEE CHAPTER 1C2A

172
Q 
An investor pays a clean price of £114.60 for £100 nominal value of stock with a 5.5% coupon. Assuming the stock has exactly four years to run until maturity, what will the gross redemption yield be?
Select one:
a. 3.65%.
b. 4.8%. 
c. 3.19%.
d. 1.61%.
A

d. 1.61%.

SEE CHAPTER 1B4B

173
Q

A convertible preference share was issued many years ago. Since then, the ordinary share price has gone up to such an extent that it is expected the conversion rights will be taken up. It is LIKELY that the price of the preference share will:
Select one:
a. be inversely related to the price of the ordinary share.
b. track the price of the ordinary share.
c. be very sensitive to changes in interest rates.
d. be inversely related to interest rates and not correlated at all to the ordinary share price.

A

b. track the price of the ordinary share.

SEE CHAPTER 1C3A

174
Q 
Horatio is an ethical investor and he is looking for an appropriate benchmark for his share portfolio. The MOST suitable would be the:
Select one:
a. FTSE4Good. 
b. FTSE Fledgling.
c. FTSE All-Share.
d. FTSE Small Cap.
A

a. FTSE4Good.

SEE CHAPTER 1C6B

175
Q 
In February 2018 Karen paid £12,500 for gilts with a nominal value of £10,000. Within six months she received her first interest payment of £200. What is the coupon on the gilt?
Select one:
a. 3.2%.
b. 1.6%.
c. 4%.
d. 2%.
A

c. 4%.

SEE CHAPTER 1B1A

176
Q

Marta purchases shares for £19,000 using a stock transfer form. It is CORRECT to say that:

You must select ALL the correct options to gain the mark:

a. the tax she pays will be rounded to the nearest penny.
b. she will pay stamp duty.
c. the tax she pays will be rounded down to the nearest £5.
d. she will pay stamp duty reserve tax.
e. if the shares are quoted on the AIM market, there will be no transfer tax to pay.

A

b. she will pay stamp duty.
e. if the shares are quoted on the AIM market, there will be no transfer tax to pay.

SEE CHAPTER 1C2A

177
Q 
In September 2017 Spencer paid £7,500 for £10,000 nominal value of Treasury 4% 2028. How much interest will he receive from this stock every six months?
Select one:
a. £400.
b. £200.
c. £300.
d. £150.
A

b. £200.

SEE CHAPTER 1B1A

178
Q

Treasury bills differ to certificates of deposit due to the fact that:
Select one:
a. only fund managers can purchase Treasury bills.
b. they belong to different asset classes.
c. Treasury bills are backed by the Government.
d. only certificates of deposit are bought at a discount to their par value.

A

c. Treasury bills are backed by the Government.

SEE CHAPTER 1A5B

179
Q

A fund manager is considering making direct investments into fixed-interest securities and corporate bonds. What characteristics of each should he be aware of?
Select one:
a. Corporate bonds will always trade below par whereas gilts tend to trade above par.
b. Corporate bonds are typically more volatile than gilts.
c. The spread between the buying and selling prices of a corporate bond is narrower than for gilts.
d. Yields on gilts are generally higher than on corporate bonds.

A

b. Corporate bonds are typically more volatile than gilts.

SEE CHAPTER 1B8

180
Q

In recent years, what factor may have reduced the benefits of international diversification within an equity portfolio?
Select one:
a. Inflation.
b. Industrialisation of emerging economies.
c. Low interest rates.
d. Globalisation.

A

d. Globalisation.

SEE CHAPTER 1C3D

181
Q

Gerald purchases a gilt 5 days before its interest payment date. It is TRUE to say that he will:
Select one:
a. not receive the next interest payment and will pay a price lower than the dirty price.
b. receive the next interest payment and will pay a price lower than the dirty price.
c. receive the next interest payment and will pay a price higher than the clean price.
d. not receive the next interest payment and will pay a price lower than the clean price.

A

d. not receive the next interest payment and will pay a price lower than the clean price.

SEE CHAPTER 1B2C

182
Q

Bob and Betty have a joint account with BigBank Plc for £200,000, plus they have £50,000 each with BTS Bank. In the event of both banks defaulting, under the Financial Services Compensation Scheme (FSCS) they would receive:

You must select ALL the correct options to gain the mark:

a. £50,000 for Bob’s BTS Bank account.
b. £170,000 for the joint account with BigBank.
c. £85,000 as a couple for the BTS Bank accounts.
d. a maximum of no more than £85,000 each in total.
e. £50,000 for Betty’s BTS Bank account.

A

a. £50,000 for Bob’s BTS Bank account.
b. £170,000 for the joint account with BigBank.
e. £50,000 for Betty’s BTS Bank account.

SEE CHAPTER 1A2A

183
Q 
Conditions that allow investors to buy bond income at almost any redemption period for much the same price would be reflected by a:
Select one:
a. normal yield curve.
b. flat yield curve. 
c. stable yield curve.
d. reverse yield curve.
A

b. flat yield curve.

SEE CHAPTER 1B6

184
Q

Malik is about to invest in his first buy-to-let property. His main concern should be that:
Select one:
a. he may be unable to reclaim any tax paid at source.
b. the smaller the property, the smaller the yield.
c. his investment is unlikely to provide a ‘real return’ over the long term.
d. he may be unable to sell the property quickly in order to realise liquid cash.

A

d. he may be unable to sell the property quickly in order to realise liquid cash.

SEE CHAPTER 1D1A

185
Q 
An investment manager is conducting an analysis of a share which she is potentially interested investing in. She has the following information: the amount available for dividends is £320,000; the number of shares is 20,000; the share price is 220 pence. The dividend yield is:
Select one:
a. 16%. 
b. 10%.
c. 7.27%.
d. 14.54%.
A

c. 7.27%.

SEE CHAPTER 1C5B

186
Q

George has £125,000 on deposit with a bank based in the Isle of Man, £150,000 with ABC Bank in the UK and £95,000 on deposit in Spain with a Spanish subsidiary of ABC Bank. Under the Financial Services Compensation Scheme, what would George receive if each of the three banks were to default?

You must select ALL the correct options to gain the mark:

a. £85,000 in total for the ABC Bank account and the Spanish subsidiary of ABC Bank.
b. £95,000 for the Spanish subsidiary of ABC Bank.
c. £85,000 for the Isle of Man account.
d. £85,000 for the ABC Bank account.
e. £85,000 for the Spanish subsidiary of ABC Bank.

A

d. £85,000 for the ABC Bank account.
e. £85,000 for the Spanish subsidiary of ABC Bank.

SEE CHAPTER 1A2A

187
Q

Which of these indices are NOT value weighted?

You must select ALL the correct options to gain the mark:

a. Hang Seng.
b. Nikkei 225.
c. DAX 30.
d. TOPIX.
e. Dow Jones.

A

b. Nikkei 225.
e. Dow Jones.

SEE CHAPTER 1C6D

188
Q

Suni is interested in investing in tangible investments, such as works of art, antiques and other rare items. This type of investment would be UNSUITABLE for her if she:

You must select ALL the correct options to gain the mark:

a. does not have the means to protect her investments from damage or theft.
b. is looking for income or a regular return.
c. has a low to medium attitude to risk.
d. is looking for capital growth over the long term.
e. has a significant amount of money to invest.

A

a. does not have the means to protect her investments from damage or theft.
b. is looking for income or a regular return.
c. has a low to medium attitude to risk.

SEE CHAPTER 1E1

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