Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Test > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Betty, 67, is an existing client and you have previously recommended adventurous funds that suited her attitude to risk. At your latest meeting, however, you identified a reduced risk capacity impacting your recommendation. This is most likely to be because:
Select one:
a. her age makes it sensible to always de-risk and preserve the capital she has built up.
b. there has been a fall in the market in general which has been highly publicised in the media.
c. her children have expressed their need for capital preservation of her pension fund.
d. her standard of living would be impacted greatly if her drawdown income fell significantly.

A

d. her standard of living would be impacted greatly if her drawdown income fell significantly.

SEE CHAPTER 8D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q 
Julian, a veteran fund manager, has selected the stocks as the first element of his portfolio construction. What method of portfolio construction is this?
Select one:
a. Stochastic. 
b. Optimisation.
c. Bottom up.
d. Top down.
A

c. Bottom up.

SEE CHAPTER 8E2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q 
A UK authorised fund has just purchased an equity for £200,000. What stamp duty will it pay, if any?
Select one:
a. £2,000.
b. £3,000.
c. £1,000.
d. £0.
A

c. £1,000.

SEE CHAPTER 8F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Leda is a fund manager who frequently applies an ‘overlay’ strategy, meaning that:
Select one:
a. a mixture of different approaches, including GAARP and contrarianism, are combined.
b. a core portfolio is held, and derivatives are used to alter currency and market exposures.
c. a mixture of different approaches, including momentum and value investing, are combined.
d. a core portfolio is held, and a ‘sector rotation’ approach is used to gain alpha.

A

b. a core portfolio is held, and derivatives are used to alter currency and market exposures.

SEE CHAPTER 8E5

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

An adviser is keen on recommending passive rather than active funds. The MOST likely reason for this is to:
Select one:
a. increase the opportunity for the portfolio to out-perform an index.
b. increase the alpha of the portfolio.
c. limit the volatility of a portfolio.
d. reduce the beta of the portfolio.

A

c. limit the volatility of a portfolio.

SEE CHAPTER 8F6

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q 
Daniel's portfolio has just been rebalanced by his fund manager. This is MOST likely to be because:
Select one:
a. his tax status is about to change.
b. his risk profile has changed. 
c. his tax status has changed.
d. it is a new tax year.
A

b. his risk profile has changed.

SEE CHAPTER 8L6A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Giles is reviewing the charges on his unit trust portfolio. When looking at the ongoing charges figure (OCF) and the total cost of ownership (TCO) figure, Giles is MOST likely to find that:
Select one:
a. the two figures would always be broadly the same.
b. the TCO amount would be less than the OCF figure.
c. a high OCF amount will not impact on the TCO.
d. the OCF amount would be less than the TCO figure.

A

d. the OCF amount would be less than the TCO figure.

SEE CHAPTER 8F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q 
Jake has made an investment into a unit trust that is not actively managed. This means that for his investment he has a:
Select one:
a. synthetic structure. 
b. physical index.
c. synthetic index.
d. physical structure.
A

d. physical structure.

SEE CHAPTER 8F6

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q 
Idris has £100,000 invested in a tracker fund. You would expect his annual management charge would be LIKELY to be in the region of:
Select one:
a. £1,000.
b. £850.
c. £500. 
d. £100.
A

c. £500.

SEE CHAPTER 8F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q 
Jill, an experienced IFA, is presenting a pension transfer illustration to her favourite client. She explains a range of possible investment outcomes to her client based on the future asset allocation. What method is she using?
Select one:
a. Future modelling.
b. Deterministic modelling.
c. Stochastic modelling.
d. Active modelling.
A

c. Stochastic modelling.

SEE CHAPTER 8B3

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Asset A is correlated with Asset B with a correlation score of 1.0. This means that the assets are:
Select one:
a. never going to deliver the same returns.
b. uncorrelated.
c. perfectly negatively correlated.
d. perfectly positively correlated.

A

d. perfectly positively correlated.

SEE CHAPTER 8B1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q 
Daniel, a top quality fund manager, has increased the level of equities in the fund from the benchmark weighting of 40% to 45% half way through the year. What is this an example of?
Select one:
a. Contingent asset allocation.
b. Tactical asset allocation.
c. Diversified asset allocation.
d. Strategic asset allocation.
A

b. Tactical asset allocation.

SEE CHAPTER 8C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Charles is about to make a gain on some direct equity holdings. What action should he consider if he wishes to avoid capital gains tax?
Select one:
a. Re-invest the gains into a venture capital trust.
b. Carry forward unused annual exemptions.
c. Wait for the shares to reduce in value in order to reduce the gain.
d. Transfer some of the shares to his spouse prior to disposal.

A

d. Transfer some of the shares to his spouse prior to disposal.

SEE CHAPTER 8L6B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q 
Janine is intrigued by the view that, when it comes to investing, the average opinion is usually wrong, and that high returns can be achieved by going against the trend. Which fund management style would suit her best?
Select one:
a. GAARP.
b. Value. 
c. Contrarianism.
d. Momentum.
A

c. Contrarianism.

SEE CHAPTER 8E4

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q 
Toby believes in a fund management style which adopts the view that there is a tendency for both good and bad performance to persist. This style is known as:
Select one:
a. momentum. 
b. GAARP.
c. value.
d. contrarianism.
A

a. momentum.

SEE CHAPTER 8E4

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q 
Under which approach to asset allocation are optimal portfolios created from sets of asset classes using historic data for returns and volatility?
Select one:
a. Pragmatic.
b. Passive. 
c. Theoretical.
d. Active.
A

c. Theoretical.

SEE CHAPTER 8A1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Phil was advised to invest in a portfolio based on the ‘optimisation’ strategy. Disappointingly, the portfolio did not match the return of the market. The reasons for this could include:
Select one:
a. the market entered the boom phase of the economic cycle.
b. the historic data used for risk and correlation proved to be a poor guide to the future.
c. Phil’s tax position when encashing was different to that initially expected.
d. Phil’s time horizon for investing extended by a year.

A

b. the historic data used for risk and correlation proved to be a poor guide to the future.

SEE CHAPTER 8B2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q 
Asset allocation based on modern portfolio theory derives portfolios from a process of:
Select one:
a. hedging.
b. optimisation.
c. netting.
d. diversification.
A

b. optimisation.

SEE CHAPTER 8B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Elaine has a structured product that gives a guaranteed return of 120% of the FTSE100 Index or full return of capital if the index is lower at redemption. Doris has a structured product that provides an income of 7% annually with a full return of capital unless the index falls by 50% or more, in which case capital loss is on a pro rata basis. It is true to say that:
Select one:
a. Elaine has hard protection and Doris has soft protection.
b. both Elaine and Doris have hard protection.
c. both Elaine and Doris have soft protection.
d. Elaine has soft protection and Doris has hard protection.

A

a. Elaine has hard protection and Doris has soft protection.

SEE CHAPTER 8E6

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q 
The ongoing charges figure includes which of the following charges?
Select one:
a. Dealing charges.
b. Annual charges. 
c. Initial charges.
d. Exit charges.
A

b. Annual charges.

SEE CHAPTER 8F2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q 
Correlation, standard deviation and the efficient frontier for investments are all associated with:
Select one:
a. modern portfolio theory.
b. the capital asset pricing model.
c. the efficient market hypothesis. 
d. arbitrage pricing theory.
A

a. modern portfolio theory.

SEE CHAPTER 8A1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Frank favours a purely pragmatic approach to asset allocation. What is a key risk of this?
Select one:
a. It relies purely on historical past performance.
b. It takes no account of volatility.
c. It takes no account of the correlation between different asset classes.
d. The risk of bias either for or against asset classes.

A

d. The risk of bias either for or against asset classes.

SEE CHAPTER 8A4

23
Q

During her review, Jenifer’s adviser recommends that she switch some of her investments to rebalance her portfolio. Therefore:

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

a. the adviser must report the advice to their compliance officer.
b. Jenifer’s best performing asset could be sold.
c. the portfolio is likely to become more tax efficient.
d. Jenifer’s risk profile must have become more adventurous.
e. the switches may give rise to a capital gains tax liability.

A

b. Jenifer’s best performing asset could be sold.
e. the switches may give rise to a capital gains tax liability.

SEE CHAPTER 8L6B

24
Q

Lana, a portfolio manager, regards herself as a ‘momentum’ investor. The stock that would interest her MOST would be a stock that:
Select one:
a. is expected to perform well in the environment created at that point of the economic cycle.
b. is ‘out of fashion’ in the market but Lana thinks it is worth more than the price placed on it by the market.
c. the market as a whole doesn’t like, and Lana thinks high returns can be achieved by going against the trend.
d. has a high price earnings ratio having been subject to an attractive takeover bid.

A

a. is expected to perform well in the environment created at that point of the economic cycle.

SEE CHAPTER 8E4

25
Q

What would an investor policy statement typically contain?

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

a. Legal constraints.
b. Terms of business.
c. Fund manager’s credentials.
d. Risk classification.
e. Overall investment objective.

A

a. Legal constraints.
d. Risk classification.
e. Overall investment objective.

SEE CHAPTER 8L1

26
Q

Switching a client’s investments may give rise to a realised capital gain. What options should be considered to reduce or eliminate any capital gains tax (CGT) in this instance?

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

a. Offset gain(s) against losses made in previous years.
b. Switch via an offshore account.
c. Consider use of the client’s annual CGT exempt amount.
d. Transfer the investments into a trust before selling.
e. Transfer the investments to the client’s spouse before selling.

A

a. Offset gain(s) against losses made in previous years.
c. Consider use of the client’s annual CGT exempt amount.
e. Transfer the investments to the client’s spouse before selling.

SEE CHAPTER 8L6B

27
Q 
A fund's ongoing charges figure would include:
Select one:
a. the commission on trades.
b. the annual management charge. 
c. initial charges.
d. exit costs.
A

b. the annual management charge.

SEE CHAPTER 8F2

28
Q 
Sandra has agreed a benchmark portfolio with her adviser. The benchmark states that Sandra will hold 60% of her fund in equities but that this can vary between 55% - 65% as the portfolio manager sees fit. This is an example of:
Select one:
a. tactical asset allocation.
b. the top down approach.
c. stochastic modelling. 
d. strategic asset allocation.
A

a. tactical asset allocation.

SEE CHAPTER 8C

29
Q

Hilary, a portfolio manager, regards herself as a ‘value’ investor. Which investment is MOST likely to interest her?
Select one:
a. A stock that is ‘out of fashion’ in the market but which Hilary thinks is worth more than the price placed on it by the market.
b. A stock that is expected to perform well in the environment created at that point of the economic cycle.
c. A stock that the market as a whole doesn’t like, and Hilary thinks high returns can be achieved by going against the trend.
d. A stock whose price may appear at a high level, but Hilary thinks has premium quality long-term characteristics.

A

a. A stock that is ‘out of fashion’ in the market but which Hilary thinks is worth more than the price placed on it by the market.

SEE CHAPTER 8E4

30
Q

Harry has purchased a structured product that gives ‘hard protection’. The MOST likely return Harry will receive from the product is:
Select one:
a. the ongoing income guaranteed, increasing by a real rate of return above inflation as measured by CPI.
b. the ongoing income guaranteed and a capped maximum reduction in the initial capital.
c. the initial capital guaranteed and the possibility of an additional return linked to the FTSE 100.
d. the initial capital guaranteed and the possibility of an additional return linked to inflation rates.

A

c. the initial capital guaranteed and the possibility of an additional return linked to the FTSE 100.

SEE CHAPTER 8E6

31
Q

An active fund manager’s performance is best viewed:
Select one:
a. over the same number of years as the expected investment period.
b. over a variety of periods.
c. over the past 3 years.
d. over the past 12 months.

A

b. over a variety of periods.

SEE CHAPTER 8F4

32
Q 
Howard, who has a high attitude to risk, is considering his adviser's recommendation to adopt a core-satellite approach to managing his portfolio. His advisor has explained that this approach will hold the core investments in:
Select one:
a. property funds.
b. commodity funds.
c. specialist funds. 
d. passive funds.
A

d. passive funds.

SEE CHAPTER 8C1

33
Q

Jordan’s portfolio is invested in managed unit trusts. He has a high tolerance to risk and is discussing with his adviser the merits of switching into exchange traded funds. He should be aware:

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

a. this could be justified where there has been persistent underperformance.
b. that switching is not permitted within the first five years of purchase.
c. there shouldn’t be any potential tax issues with this.
d. that his new portfolio might not reflect his attitude to risk.
e. this might be an example of his adviser ‘churning’ investments.

A

a. this could be justified where there has been persistent underperformance.
d. that his new portfolio might not reflect his attitude to risk.
e. this might be an example of his adviser ‘churning’ investments.

SEE CHAPTER 8L6

34
Q

Ray is an investment fund manager who follows the ‘pragmatist’ approach. This means that he:
Select one:
a. uses forward-looking judgments of likely returns and volatility to determine portfolio weightings.
b. relies on deep and vigorous analysis to identify businesses whose value is greater than the price placed on them by the market.
c. uses mathematical analysis and techniques with the aim of obtaining the desired risk-return trade-off.
d. invests for the long-term and will only adjust asset allocations in extreme conditions.

A

a. uses forward-looking judgments of likely returns and volatility to determine portfolio weightings.

SEE CHAPTER 8A2

35
Q 
Liam invested in a maximum investment plan exactly eight years ago. He can access the funds tax-free after what further MINIMUM period of time?
Select one:
a. He can have immediate access.
b. 2 years, 7 months.
c. 2 years. 
d. 6 months.
A

a. He can have immediate access.

SEE CHAPTER 8G4

36
Q

Yosuf has received a total dividend payment of £1,000 from his direct equity holding, his only investment. Zena has received a dividend of £1,000 from her Individual Savings Account. Assuming they are both higher rate taxpayers and neither has used their dividend allowance, what is the difference in the amount of tax they will pay on the dividends?
Select one:
a. Yosuf will pay 32.5% more tax than Zena.
b. Zena will pay 7.5% more tax than Yosuf.
c. There is no difference.
d. Yosuf will pay 22.5% more tax than Zena.

A

c. There is no difference.

SEE CHAPTER 8G2

37
Q

Fiona, a portfolio manager, regards herself as a ‘GAARP’ investor. Which investment is MOST likely to interest her?
Select one:
a. A stock that the market as a whole doesn’t like, and Fiona thinks high returns can be achieved by going against the trend.
b. A stock that is ‘out of fashion’ in the market but that Fiona thinks is worth more than the price placed on it by the market.
c. A stock that is expected to perform well in the environment created at that point of the economic cycle.
d. A stock whose price may appear at a high level, but Fiona thinks has premium quality long-term characteristics.

A

d. A stock whose price may appear at a high level, but Fiona thinks has premium quality long-term characteristics.

SEE CHAPTER 8E4

38
Q 
Penny invested in a maximum investment plan exactly six years ago. She can access the funds tax free after what further MINIMUM period of time?
Select one:
a. 4 years. 
b. 2 years.
c. Immediately.
d. 18 months.
A

d. 18 months.

SEE CHAPTER 8G4

39
Q 
The theory which indicates the optimal portfolio for an investor based on their level of risk is the:
Select one:
a. modern portfolio theory.
b. stochastic portfolio model.
c. Growth At A Reasonable Price style.
d. Fama and French model.
A

a. modern portfolio theory.

SEE CHAPTER 8A1

40
Q

Geoff, a client, has informed Paul, his financial adviser, that he would like to increase the equity content of his portfolio. Paul should:

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

a. insist that Geoff invest first in passive equity funds.
b. switch all non equity assets to cash whilst a new recommendation is prepared.
c. re-establish Geoff’s attitude to risk.
d. confirm all changes to the existing portfolio in writing.
e. determine any change in Geoff’s objectives.

A

c. re-establish Geoff’s attitude to risk.
d. confirm all changes to the existing portfolio in writing.
e. determine any change in Geoff’s objectives.

SEE CHAPTER 8L6

41
Q 
George's investment uses derivatives in order to match the FTSE 350 index. He therefore has a[n]:
Select one:
a. active synthetic fund.
b. passive physical fund.
c. active physical fund.
d. passive synthetic fund.
A

d. passive synthetic fund.

SEE CHAPTER 8F6

42
Q

Brenda has decided to have her portfolio managed on an active basis. This is because she:
Select one:
a. believes that active management will outperform the benchmark index.
b. has a moderate to low attitude to risk.
c. is funding her investments with regular premiums.
d. wishes to take an income from her portfolio.

A

a. believes that active management will outperform the benchmark index.

SEE CHAPTER 8C1

43
Q 
Portfolios that diverge significantly from index benchmarks will typically display:
Select one:
a. lower short-term volatility.
b. inferior long-term performance. 
c. superior long-term performance.
d. greater short-term volatility.
A

d. greater short-term volatility.

SEE CHAPTER 8E1

44
Q 
What method of portfolio construction is MOST likely to be used when managing index tracking funds?
Select one:
a. Value.
b. Growth At A Reasonable Price.
c. Top-down. 
d. Momentum.
A

c. Top-down.

SEE CHAPTER 8E1

45
Q

A fund manager investing the assets of a trust could be bound by the:

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

a. Variations of Trust Act 1958.
b. Trust Companies Act 2005.
c. Trustee Act 2000.
d. wishes of the beneficiaries.
e. trust deed.

A

c. Trustee Act 2000.
e. trust deed.

SEE CHAPTER 8L2A

46
Q

The main focus of asset allocation is:
Select one:
a. the concentration of capital and reduction of risk.
b. the preservation of capital and reduction of risk.
c. the preservation of capital and building of wealth.
d. the concentration of capital and building of wealth.

A

b. the preservation of capital and reduction of risk.

SEE CHAPTER 8A

47
Q

Gillian has recently received a contract note from her investment adviser. This document will USUALLY give her the:

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

a. expected dividend.
b. full name of share or stock.
c. amount of Value Added Tax paid.
d. settlement date.
e. number of shares bought/sold.

A

b. full name of share or stock.
d. settlement date.
e. number of shares bought/sold.

SEE CHAPTER 8L5

48
Q

Kim, an adviser, has established that Caleb, a client, has a BALANCED attitude to risk. The assets that Kim would typically advise Caleb to hold in his portfolio would include:

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

a. smaller overseas companies.
b. fixed-interest securities.
c. investment trusts.
d. open ended investment companies.
e. unlisted securities.
f. larger overseas listed companies.

A

b. fixed-interest securities.
c. investment trusts.
d. open ended investment companies.
f. larger overseas listed companies.

SEE CHAPTER 8L1

49
Q

Vladimir is invested in a structured product which offers him ‘soft protection’. He should be aware that:
Select one:
a. they are readily accessible for a small charge.
b. counterparty risk does not apply to these products.
c. his capital is at risk if a stated threshold is breached.
d. these types of product are very low risk.

A

c. his capital is at risk if a stated threshold is breached.

SEE CHAPTER 8E6

50
Q

The extent to which an asset contributes to the overall risk-return characteristics of a portfolio is determined by its:
Select one:
a. standard deviation.
b. correlation with other assets in the portfolio.
c. Sharpe ratio.
d. quartile performance over the last five years.

A

b. correlation with other assets in the portfolio.

SEE CHAPTER 8B1

51
Q

Nigel’s adviser is using stochastic portfolio modelling. This means that he will:
Select one:
a. use optimisation programmes to determine the most effective passive investment approach.
b. adopt an asset allocation model that gives him a range for the percentage of capital in each asset class.
c. set Nigel’s asset allocation for the long term and only adjust it in extreme circumstances.
d. use a number of factors to generate a probabilistic assessment of returns and volatility.

A

d. use a number of factors to generate a probabilistic assessment of returns and volatility.

SEE CHAPTER 8B3

52
Q

Gavin, a higher rate taxpayer, is considering investing in either an onshore or an offshore bond. An onshore bond is likely to be MORE suitable if:
Select one:
a. he wishes to take a regular income.
b. he is likely to be a non-taxpayer when the bond is encashed.
c. he wishes to adopt a core-satellite approach to his investments.
d. he is likely to be a taxpayer when the bond is encashed.

A

d. he is likely to be a taxpayer when the bond is encashed.

SEE CHAPTER 8G4

53
Q

Defined benefits pension schemes need to remain viable during long periods of inflation. What investments are scheme managers likely to include within the fund to try to ensure this is the case?

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

b. Property.
c. Inflation swaps.
d. Commercial bills.
e. Equities.
f. Debentures.

A

a. Index-linked bonds.
b. Property.
c. Inflation swaps.
e. Equities.

SEE CHAPTER 8L2B

Test (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions