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CeMAP 1 > MOCK EXAM 1 > Flashcards

MOCK EXAM 1 Flashcards

1
Q

Who is responsible for the control of interest rates in the UK economy?

A. The Bank of England
B. The Treasury
C. The Chancellor of the Exchequer
D. The British Bankers Association

A

A. The Bank of England

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2
Q

Which index does the government use to assess the inflation rate?

A. Retail prices index
B. Consumer prices index
C. Construction and building prices index
D. FTSE 100 index

A

B. Consumer prices index

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3
Q

Which of the following describes a function of the Bank of England?

A. Depositing money with the International Monetary Fund
B. Managing new issues of gilt edged securities
C. Acting as banker to the government
D. Regulating foreign investments

A

C. Acting as banker to the government

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4
Q

Which of the following factors distinguishes building societies from banks?

A. They are mutual institutions owned by their members
B. They are owned by their shareholders
C. They cannot make regulated loans
D. They can only lend for mortgage purposes

A

A. They are mutual institutions owned by their members

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5
Q

Under what circumstances if any can a nation state opt out of a regulation laid down by the European Council and Council of Ministers?

A. None
B. Only if specific dispensation has been granted
C. Only if an alternative approach has been agreed
D. Only if the member has joined within the previous three years

A

B. Only if specific dispensation has been granted

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6
Q

On which one of the following is the payment of capital gains tax most likely to arise?

A. The payment of £30,000 in respect of redundancy
B. The sale of an antique grandfather clock for £6,000
C. The sale of a holiday home for £147,500
D. The encashment of an equities ISA

A

C. The sale of a holiday home for £147,500

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7
Q

Damien has gifted some authorised unit trusts to his brother, on which a capital gain of £8,000 has been made. At what rate will he be required to pay capital gains tax?

A. 0%
B. 10%
C. 20%
D. 40%

A

A. 0%

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8
Q

Which of the following would not normally be assessable for income tax?

A. Interest on savings on a standard savings account
B. Casual gambling proceeds
C. Dividends from shares
D. Income from gilt edged securities

A

B. Casual gambling proceeds

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9
Q

Which one of the following is NOT a way of establishing domicile?

A. By deed poll
B. By residency
C. By birth
D. By choice

A

A. By deed poll

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10
Q

On which one of the following would a child be subject to income tax?

A. A settlement from his parents
B. An educational grant
C. All earned income
D. Any earned income that exceeds his personal allowance

A

D. Any earned income that exceeds his personal allowance

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11
Q

What is the threshold above which income tax is payable on redundancy payments?

A. £20,000
B. £29,900
C. £30,000
D. £35,000

A

C. £30,000

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12
Q

Diane has been told that she must pay a certain class of National Insurance on a twice yearly basis. This confirms that she is:

A. earning more than the upper earnings limit
B. on maternity leave
C. self employed
D. temporarily working abroad

A

C. self employed

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13
Q

The rate of inheritance tax on a chargeable lifetime transfer when it is made is:

A. 18%
B. 20%
C. 22%
D. 40%

A

B. 20%

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14
Q

Capital gains tax is best described as a tax:

A. levied on the estate of an individual on his death.

B. payable on proceeds received on the disposal of any asset.

C. levied on the recipient of a gift if the donor dies within 7 years of giving it.

D. payable on the gain arising from the disposal of a chargeable asset.

A

D. payable on the gain arising from the disposal of a chargeable asset.

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15
Q

Bill sold some investments in March 2016 on which he made a taxable capital gain. When would this tax have become due for payment?

A. September 2016
B. January 2017
C. April 2017
D. January 2008

A

B. January 2017

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16
Q

Gilts with 66 years to run before their redemption date are known as:

A. undated
B. short-dated
C. medium-dated
D. long-dated

A

D. long-dated

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17
Q

Fiona, a higher rate taxpayer has an ordinary building society savings account. What is the MAXIMUM amount of annual interest she can receive before she is liable for income tax?

A. £1,000
B. Nil
C. £5,000
D. £500

A

D. £500

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18
Q

Over the longer term, what risk is normally associated with deposit-based investments?

A. The value of capital will fluctuate and may fall below the original investment

B. There is no guarantee that the original capital will be returned at maturity

C. The real value of capital may be eroded due to the effects of inflation

D. There is the potential for suffering large capital losses

A

C. The real value of capital may be eroded due to the effects of inflation

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19
Q

In May 2017, Alison, 45, wants an investment vehicle to save towards a deposit for her first house. She wants to invest £30,000 immediately, followed by £220 per month over the following year. Which one of the following is the MOST suitable product for her objectives?

A. Investment trust
B. Unit Trust
C. ISA
D. High interest building society account

A

D. High interest building society account

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20
Q

Index-linked gilts are gilts where the interest payments:

A. and the capital value move in line with the FTSE index.

B. move in line with the Retail Price Index and the capital value remains level.

C. move in line with the FTSE index and the capital value remains level.

D. and the capital value move in line with the Retail Price Index.

A

D. and the capital value move in line with the Retail Price Index.

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21
Q

Yvonne is a non-taxpayer and holds a building society deposit account. Her interest will be paid:

A. net of 20% tax
B. net of l0% tax
C. gross
D. net of 20% tax, which she can reclaim through her tax returns

A

C. gross

22
Q

National Savings Premium Bonds are MORE advantageous for:

A. higher rate and non-taxpayers than for basic rate taxpayers

B. non-taxpayers than for higher rate and basic rate taxpayers

C. basic rate taxpayers than for higher rate and non-taxpayers

D. higher rate and basic rate taxpayers than for non-taxpayers

A

D. higher rate and basic rate taxpayers than for non-taxpayers

23
Q

Terry has the coupon on his Gilts paid gross. As a higher rate taxpayer he will pay:

A. 20% income tax on income received
B. 40% income tax on income received
C. Capital gains tax at maturity
D. Marginal rate income tax at encashment

A

B. 40% income tax on income received

24
Q

Alec Enterprises intends to raise additional finance by issuing more shares. They are therefore obliged to:

A. make a rights issue
B. delay dividend payments
C. guarantee no existing shareholder will be adversely affected
D. make at least 25% more shares available

A

A. make a rights issue

25
Q

What effect does the anticipation or actual increase in interest rates have on the price and income from gilt-edged securities?

A. Gilt prices rise and the income yields fall
B. Gilt prices fall and the income yields rise
C. Gilt prices and the coupons rise
D. It depends on the coupon and redemption date of the gilt

A

D. It depends on the coupon and redemption date of the gilt

26
Q

Under a unit trust, what does the cancellation price represent?

A. The minimum price at which investors may cash in their units

B. The maximum price at which a full encashment of units may be made

C. The price applicable to investors who cancel their investment during the cooling off period

D. The price at which the manager will buy back units if underlying assets do not have to be traded

A

A. The minimum price at which investors may cash in their units

27
Q

An investment trust:

A. is another name for a unit trust.
B. is a public limited company.
C. is subject to capital gains tax.
D. pays out gross income to investors.

A

B. is a public limited company.

28
Q

Bill wants an investment where he does not have to pay capital gains tax. He is interested in unit trusts, investment trusts and open-ended investment companies. Which one of these would achieve his investing aims?

A. A unit trust
B. An investment trust
C. An OEIC
D. None of these investments would be suitable

A

D. None of these investments would be suitable

29
Q

When used to repay a mortgage for a client with a low - medium risk profile, which type of endowment policy is MOST likely to produce a surplus on the maturity date?

A. Low-start
B. Non-profit
C. Full With-profit
D. Unit-linked

A

C. Full With-profit

30
Q

The amount of ‘deferred’ interest under a deferred interest mortgage is:

A. added to the loan outstanding.

B. repaid in full at the end of the deferred period.

C. written off by the lender provided the mortgage runs full term.

D. collected by means of repayments calculated at a rate higher than the market rate after the deferred period.

A

A. added to the loan outstanding.

31
Q

William and Kate have a standard variable rate mortgage which is due to be repaid by an equity based ISA. Which factor would most immediately adversely affect their monthly budgeting?

A. A fall in the FTSE
B. A fall in interest rates
C. A rise in the FTSE
D. A rise in interest rates

A

D. A rise in interest rates

32
Q

Irrespective of the type of endowment policy he chooses, Jack has been correctly advised that his policy will:

A. guarantee to repay the mortgage on death or at maturity.

B. guarantee to repay the mortgage on death before the maturity date.

C. ensure a lump sum at maturity in excess of the value of the mortgage.

D. require additional life cover if interest rates increase over time.

A

B. guarantee to repay the mortgage on death before the maturity date.

33
Q

Which one of the following is the MOST appropriate type of life policy to support an ISA mortgage?

A. Decreasing term assurance
B. Level term assurance
C. Endowment assurance
D. Whole of life assurance

A

B. Level term assurance

34
Q

Accident, sickness and unemployment policies provide benefits on which one of the following bases?

A. Regular income payable for an unlimited period
B. Regular income payable for a deferred maximum period
C. Lump sum payable after a short deferred period
D. Lump sum payable at the end of the term

A

B. Regular income payable for a deferred maximum period

35
Q

Which is the INCORRECT statement regarding free standing additional voluntary contributions plans (FSAVCs)?

A. FSAVCs can be used to supplement the income from an occupational pension scheme

B. Employers must contribute to an employee’s FSAVC plan

C. FSA VCs are initiated by the employee

D. FSA VCs provide an income in retirement

A

B. Employers must contribute to an employee’s FSAVC plan

36
Q

Mike is retiring from his company after 25 years. He is planning to take a cash lump sum of £30,000 and £15,000 per annum from his personal pension plan. What will the tax liability be on these benefits?

A. The lump sum will be tax free but he will pay income tax on the annual pension

B. He will pay capital gains tax on the lump sum above the annual allowance

C. He will not have a tax liability on either of the pension benefits

D. The regular pension will be tax free but Mike will pay basic rate income tax on the lump sum

A

A. The lump sum will be tax free but he will pay income tax on the annual pension

37
Q

Which one of the following statements in respect of Income Support is correct?

A. Eligibility is based on the level of National Insurance Contributions made

B. Claimants must be aged 18 or over

C. It is not a payment to the claimant but a way of reducing taxable income

D. It is means tested on both income and savings

A

D. It is means tested on both income and savings

38
Q

Which basis would be MOST suitable for a husband and wife seeking to use whole-of-life assurance to cover a likely inheritance tax liability?

A. Single life on the life of the youngest
B. Single life on the life of the oldest
C. Joint life payable on the first death
D. Joint life payable on the second death

A

D. Joint life payable on the second death

39
Q

Which one of the following types of life policy is TYPICALLY used in connection with key person assurance?

A. Personal pension term assurance
B. Term assurance
C. Endowment assurance
D. Whole of life assurance

A

B. Term assurance

40
Q

Which of these is the LEAST tax efficient method of providing ‘partnership protection’ in meeting the needs of the partners’ families and the partnership itself?

A. Cross option method
B. Buy and Sell method
C. Automatic accrual method
D. With profit endowment

A

B. Buy and Sell method

41
Q

Which one of the following factors that you cover during a fact find will affect your ability to improve your client’s situation on an ongoing basis?

A. The client’s attitude to taxation on savings interest

B. The client’s willingness to review objectives if personal circumstances change

C. The client’s current financial circumstances

D. The client’s job prospects

A

B. The client’s willingness to review objectives if personal circumstances change

42
Q

What is the danger for clients with a young family, where mortgage protection is the only life insurance they currently have in place?

A. They run the risk of having their house repossessed should they die

B. They are not making best use of their tax allowances and benefits

C. The dependents would be unprotected should anything happen to either client

D. The dependents would be provided for in the event of a fatal accident

A

C. The dependents would be unprotected should anything happen to either client

43
Q

When giving advice on a particular financial services product, what will the customer probably be most interested in about the product itself?

A. Whether it is regulated
B. What other customers have said about it
C. How many of the products have been sold recently
D. The benefits it can give them

A

D. The benefits it can give them

44
Q

In order to process a death claim for a life policy not written under trust but where there is a valid will, an insurer will need to see the:

A. deed of variation
B. grant of probate
C. letters of administration
D. deed of execution

A

B. grant of probate

45
Q

Who is considered to be the legal owner of a life policy placed under trust?

A. Trustees
B. Beneficiary
C. Settlor
D. Executor

A

A. Trustees

46
Q

Which one of the following would NOT be a benefit of writing a will?

A. It can help to reduce any capital gains tax liability
B. It can shorten the time taken to deal with the deceased’s estate
C. It can make adequate financial provision for dependents
D. It ensures that the estate is distributed exactly as intended

A

A. It can help to reduce any capital gains tax liability

47
Q

When an individual dies intestate, leaving a spouse, children and an estate valued at £310,000, which one of the following applies?

A. The estate is divided equally between the surviving spouse and children

B. The entire estate passes to the spouse absolutely

C. The surviving spouse inherits a life interest only in the deceased’s entire estate

D. The first £250,000 passes to the surviving spouse absolutely, along with a further £30,000 with the other £30,000 passing to the children equally.

A

D. The first £250,000 passes to the surviving spouse absolutely, along with a further £30,000 with the other £30,000 passing to the children equally.

48
Q

Under the Consumer Insurance Disclosure Act 2012 the principle of ‘Utmost good faith’ is BEST described as the obligation to truthfully disclose:

A. only those facts which are requested on the application form

B. any deterioration in health after the plan has started

C. the reasons why the proposed level of life cover is required

D. any adverse credit history which may affect affordability of the policy

A

A. only those facts which are requested on the application form

49
Q

Steve has recently died having made a valid will. How can a potential beneficiary of the will determine the identity of Steve’s personal representatives?

A. obtaining a copy of the grant of letters of administration

B. obtaining a copy of the grant of probate

C. requesting a copy of the certified will

D. requesting a signed declaration from the solicitor

A

B. obtaining a copy of the grant of probate

50
Q

Martin has set up a trust fund for the benefit of his three grandchildren and has appointed two trustees with discretion to exercise their powers. In these circumstances, which of the following is correct?

A. both trustees must agree before exercising their discretionary powers

B. Martin is known as the testator of the trust and the grandchildren as beneficiaries

C. The Trustee Act 2000 requires the grandchildren to obtain advice when reviewing investments

D. the trustees have no legal interest in the trust property

A

A. both trustees must agree before exercising their discretionary powers

CeMAP 1 (25 decks)

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