Exam Questions

Question 1

A client is looking for an instrument with up to 5 years to maturity which will give him a return
at the end of its life, but which is also negotiable.?

exam

Answer 1

Certificate of Deposit

Question 2

Which of the following is a mandatory event?
1. Dividend
2. Rights Issue
3. Takeover
4. Scrip Dividend

exam

Answer 2

1. Dividend

Question 3

What does the seller of an option normally acquire?
A. The right to buy an asset in the future
B. The right to sell an asset in the future
C. An immediate premium
D. A premium at a specific future date

exam

Answer 3

C. An imimediate Premium

Question 4

What is a unit trust?

exam

Answer 4

A pool of investments managed on behalf of its investors by an Authorised Corporate Director

Question 5

When a firm issues a complainant with its final response, what must the firm’s letter include?

exam

Answer 5

Details of the Financial Ombudsman Service

Question 6

The bonus normally added to a with-profits policy at maturity or death is known as:

exam

Answer 6

a terminal bouns

Question 7

As well as making the selection of investments in accordance with a client’s investment objectives, a robo-adviser can provide ongoing services for what purpose?

Exam

Answer 7

Portfolio rebalancing

Question 8

Which of the following statements concerning call and put options is true?
A. The buyer of a call has the right to sell an asset
B. The buyer of a put has the right to buy or sell an asset
C. The seller of a call has the right to sell an asset
D. The buyer of a call has the right to buy an asset

Exam

Answer 8

D. A call option is when the buyer has the right to buy the asset at the exercise price.

Question 9

If there is expected to be a period of declining interest rates, which mortgage payment terms are likely to be least favourable?

Exam

Answer 9

Variable Rate

Question 10

Which of the following is a function normally undertaken by a central bank?
A. Acting as banker to banks
B. Lending to commercial companies
C. Setting tax rates
D. Operating stock markets

Exam

Answer 10

A. Central banks typically act as bankers to the banking system

Question 11

What is the corporate equivalent of Treasury bills known as?

exam

Answer 11

Commercial paper is issued by companies and is effectively the corporate equivalent of a Treasury bill

Question 12

Which world stock market still operates using a quote-driven system?
A. LSE
B. Euronext
C. NASDAQ
D. NYSE

exam

Answer 12

C. NASDAQ

Question 13

Which of the following is a zero coupon instrument?
A. Certificates of deposit
B. Cash ISAs
C. Bank current accounts
D. Treasury bills

exam

Answer 13

D. Treasury bills do not pay interest but instead are issued at a discount to par.

Question 14

Which of the following events is the best example of a mandatory corporate action with options?
A. Scrip issue
B. Takeover bid
C. Dividend payment
D. Rights issue

exam

Answer 14

D. Rights issue

A mandatory corporate action with options is an action that has some sort of default option which will occur if the shareholder does not intervene, such as a rights issue.

Question 15

A private equity fund is likely to use which of the following types of structure?
A. OEIC
B. Investment trust
C. Limited partnership
D. Trust

exam

Answer 15

C. Limited Partnership

Private equity arrangements are usually structured in different ways from retail collective investment

Question 16

A company has in issue 20 million ordinary shares of 50p nominal, originally issued at a price of £2 and currently trading at £4. It has a 1:2 capitalisation issue. How much cash will the company receive as a result of this issue?
A. Nil
B. £10 million
C. £20 million
D. £40 million

exam

Answer 16

A. Nil.

Capitalisation Issue is also known as a bonus / script issue.

A capitalisation issue involves distributing bonus shares, so there is no need to subscribe any further funds.
Definiton: A free issue of shares to existing shareholders. No money is paid. The share price falls pro rata. Also known as a capitalisation or scrip issue.

Question 17

A retail investor has placed US$10,000 on deposit at a rate of 2.5% net. What would the gross amount of interest be, assuming that 20% tax has been deducted at source?
A. US$62.50
B. US$200.00
C. US$250.00
D. US$312.50

exam

Answer 17

D.
100% – 20% = 80% = 0.8
2.5 ÷ 0.8 = 3.125
3.3.125% x $10,000 = $312.50

Net interest where tax at 20% has been deducted represents 80% of the gross amount. Looked at from the end result, if $312.50 is received, then tax will amount to $62.50 leaving a net amount of $250

Question 18

What is the likely effect of inflation?
A. Borrowers can be expected to suffer during a period of inflation
B. Incomes that increase in line with inflation will pay less tax
C. Lenders will receive a higher value in real terms on redemption of debts
D. Fixed income returns will suffer during a period of inflation

exam

Answer 18

D. Inflation erodes the value of money and so those on fixed incomes suffer

Question 19

How do you calculate the flat yield bond?

Answer 19

The flat yield of a bond is simply the annual coupon payment divided by the current price.