CHAPTER 6 Flashcards
Jason holds two bonds; one with a term of 6 years and one with a term of 20 years. If interest rates fall by 1% the value of both bonds will:
Question 2Answer
a.
increase, with the long-term bond increasing by the largest amount.
b.
decrease, with the long-term bond decreasing by the largest amount.
c.
increase, with the short-term bond increasing by the largest amount.
d.
decrease, with the short-term bond decreasing by the largest amount.
A
What type of property investment is most likely to be vulnerable to liquidity risk?
Question 3Answer
a.
A shop with a flat above it.
b.
An insurance bond invested in a property fund.
Incorrect, chapter reference 6D2
c.
A real estate investment trust.
d.
Shares in a quoted building company.
A
The organisation in the UK that identifies, monitors and takes action to remove or reduce systemic risks is the:
Question 4Answer
a.
Financial Policy Committee.
b.
PRA.
c.
FCA.
Incorrect, chapter reference 6C1
d.
Chancellor of the Exchequer.
A
The FCA has identified a shortfall risk for which particular group of investors?
Question 5Answer
a.
Advised enterprise investment scheme [EIS] investors.
Incorrect, chapter reference 6L
b.
Unadvised ISA investors.
c.
Advised alternative investment market [AIM] investors.
d.
Unadvised drawdown pension plan investors.
D
Geoff has £15,000 (THIS IS THE ORIGINAL CAPITAL) and borrows a further £5,000 (THIS IS AN ADDITIONAL £5K) to invest in shares priced at £2. He sells all the shares when the price reaches £2.40. What percentage return has he made on his original capital?
Question 7Answer
a.
20%.
b.
40%.
Incorrect, chapter reference 6D4
c.
26.67%.
d.
33.33%.
C
Which of these investors would usually be the hardest hit by inflation? (Remember, increased inflation/interest rates reduces the value of fixed-interest securities such as bonds)
Question 8Answer
a.
Wayne, who owns a number of warehouses.
Incorrect, chapter reference 6G
b.
Barry, who has built up a portfolio of buy-to-let properties.
c.
Eric, who regularly invests in private equity.
d.
Craig, who owns a number of corporate bonds.
d
Many investors in equities saw dramatic falls in the value of their portfolios following the start of the COVID-19 pandemic in 2020. This was an example of which type of risk?
Question 14Answer
a.
Event.
Incorrect, chapter reference 6B
b.
Systematic.
c.
Non-systematic.
d.
Investment specific.
b
Quantitative easing is a form of monetary policy that, when used in isolation, will tend to:
a.
increase short-term interest rates.
b.
reduce long-term interest rates.
Incorrect, chapter reference 6F2
c.
reduce short-term interest rates.
d.
increase long-term interest rates.
c
Friction Ltd is considering whether to pay out an annual dividend. In doing so, the company will have considered a range of factors EXCEPT the:
Question 6Answer
a.
retention of profits for a planned capital investment next year.
b.
well-established tradition of the company to always pay a dividend.
Incorrect, chapter reference 6E3
c.
tax considerations, as paying dividends always means that less tax is paid compared to simply retaining profits.
d.
overall profitability of the company.
C
The failures of both Carillion and Patisserie Valerie in the UK are primarily seen as examples of:
Question 9Answer
a.
regulatory risks.
b.
political risks.
c.
operational risks.
Incorrect, chapter reference 6J
d.
shortfall risks.
A
