Incorrect Answers R02 Flashcards
What are the three ways to measure risk-adjusted returns
Sharpe, Alpha & Information ratio
For a UK-Equities Collective fund, in order to calculate the Sharpe ratio, the investor will need to know
Standard Deviation of the fund
The portfolio has a beta of 0.85 and an alpha of 1.15. What does this indicate bout the investment manager’s performance?
He has added value through his stock selection.
Bill and Wendy wish to fund a single school fees payment of £14,000 in four years’ time. If the
interest rate is 5% per annum, how much will they have to invest now?
£11,517.83
An investor has increased the number of UK equities in his portfolio from 10 to 40. This action is most likely to
reduce non-systematic risk
Portfolio X consists of blue chip shares and portfolio Y consists of unlisted shares. What type of risk is likely to be significantly higher for portfolio Y when compared to portfolio X?
Liquidity risk
In order to reduce the interest-rate risk of a bond portfolio, a fund manager would usually
decrease the modified duration of the portfolio.
A UK investor is looking to purchase international equities via an open-ended investment company. In respect of currency risk he should be aware that
a hedged share class will reduce the currency risk
A main benefit of using a nominee account is that
The level of administration should be reduced
What investment can be referenced against different maturity benchmarks?
Gilts
Can the NAV of a £10k investment be more than £10k?
Yes
Barry wants to sell a conventional gilt. What should he be aware of regarding the dirty price?
The dirty price assumes that the buyer receives the accumulated interest
When are AIM shares exempt from IHT?
After two full years of holding
What does a decrease in the purchasing managers index indicate?
Economic growth is likely to be slowing
The easing of monetary policy will normally lead to a rise in property values, subject to…
Availability of housing finance
How can you profit from globalisation within an investment portfolio?
Economies with strong currencies are the greatest beneficiaries of globalisation and investment
should be made in these countries.
According to behavioural finance, an investor would most likely…
Give too much weight to recent investment experience.
A key principle of arbitrage pricing theory is the relationship between the price of a security and
Several risk factors
When using stochastic modelling in the creation of an investment portfolio. You should be aware that it
Is highly sensitive to small changes in input data
When considering the impact of the time value of money on a client’s portfolio, you should be aware that in a deflationary environment…
The real value of money will increase over time
What asset class is subject to shortfall risk?
Equities
What risk are ETNs exposed to?
Counterparty risk
Are VCTs subject to CGT on disposal on shares
No
What form of screening is more likely to invest in oil companies?
Positive Screening
Ivor invested in a split-capital investment trust that contains zero-dividend preference shares. He
should be aware that they
will have a hurdle rate that may be negative.
Regarding fixed interest securities, liquidity risk relates to…
Frequency with which the bonds are traded
Do dealing charges form part of OCF
No
What is both strategic and tactical asset allocation based on?
Preservation of capital
what grade makes bonds sub-investment grade?
BB
If the yield curve for fixed-interest securities has recently inverted, this would normally indicate that
Longer dated bonds are yielding less than shorter dated bonds
Medium to long term interest rates are expected to fall or remain low
A client has an investment portfolio and is concerned about excessive liquidity risk. To which asset
classes would this most likely apply?
Hedge Funds
Private Equity
A retail client wants to invest in private equity on a direct basis for the first time. He should be
aware that
Direct investment into private equity will usually involve a significant capital commitment.
Capital invested via a collective fund may remain in cash for some time.
Preference shares:
Have superior ranking in the event of liquidation of the company
Pay a fixed rate of dividend
Only pays dividend if the company has sufficient profits
Can there be a penalty upon full encashment of a LISA
Yes
In respect of evaluating the performance of a clients investment portfolio:
A UK Equity is likely to be benchmarked against FTSE All share Index
The returns on cash may be an appropriate benchmark
Can an OEIC use gearing?
Yes, 10%
