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CeMAP 1 > MOCK EXAM 2 > Flashcards

MOCK EXAM 2 Flashcards

1
Q

The European Union has issued a new directive. This means that a member state:

A. can choose whether or not to implement the directive.

B. has the choice of how to meet the directive’s objectives.

C. must implement the directive in its precise original wording.

D. is only required to implement the directive in its entirety if it is directed to them.

A

B. has the choice of how to meet the directive’s objectives.

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2
Q

Which of the following is always a mutual organisation?

A. bank
B. friendly society
C. insurance company
D. stock broker

A

B. friendly society

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3
Q

The reason that the Bank of England transferred responsibility for the management of new issues of gilts to the Debt Management Office was to:

A. give control to the Treasury.
B. limit the power of the Monetary Policy Committee.
C. avoid conflicts of interest.
D. minimise the administrative costs.

A

C. avoid conflicts of interest.

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4
Q

Financial intermediaries can provide maturity transformation because they:

A. aggregate many small deposits from a large number of clients.

B. offer a wide range of deposit accounts to a wide range of depositors.

C. provide services to clients from many different geographical locations.

D. reduce the risk of default or fraud by lending to a wide variety of borrowers.

A

B. offer a wide range of deposit accounts to a wide range of depositors.

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5
Q

Who is allowed to use expenses to reduce income tax liability?

A. Employees, partners and sole traders
B. Employees only
C. Sole traders only
D. Sole traders and partners only

A

A. Employees, partners and sole traders

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6
Q

Sarah has been advised that during the current tax year, 30% tax relief is available to her via self-assessment. This confirms that she:

A. was born before 6th April 1935
B. has an occupational pension plan
C. has overpaid tax in earlier years
D. has invested in a venture capital trust

A

D. has invested in a venture capital trust

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7
Q

Emma bought some shares in July that cost her £3,500. How much stamp duty reserve tax did she have to pay?

A. £35.00
B. £105.00
C. £140.00
D. £17.50

A

D. £17.50

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8
Q

What is the phrase used to describe allowable business expenses for self- employed people to set against income tax? The expenses must be incurred:

A. exclusively and necessarily’ for the business.
B. wholly and necessarily’ for the business.
C. wholly and exclusively’ for the business.
D. wholly, exclusively and necessarily’ for the business.

A

C. wholly and exclusively’ for the business.

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9
Q

In terms of individuals domiciled in the UK, which one of the following is true in relation to IHT?

A. The tax applies to all their property, whichever country it is held in

B. The tax applies only to property held in the UK

C. Transfers between spouses are exempt even if one of them is not UK domiciled

D. UK charities have to pay tax on gifts from UK domiciled persons

A

A. The tax applies to all their property, whichever country it is held in

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10
Q

Rebecca, a basic rate taxpayer, received a share dividend cheque for £1,400 in May 2018. Assuming that no further dividends are received, how much further tax will she have to pay?

A. Nothing
B. £24.00
C. £26.66
D. £54.00

A

A. Nothing

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11
Q

Which one of the following disposals in might be liable for capital gains tax?

A. Mr Griffiths’ gilt-edged securities sold for a profit of £120,000

B. Mr Ellis’ oil painting sold for £19,800

C. Mr Collins’ family home sold for a profit of £1,650,000

D. A BMW car imported by a dealer and sold at a profit of £9,000

A

B. Mr Ellis’ oil painting sold for £19,800

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12
Q

What rate of withholding tax applies to non UK residents earned income?

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

A

C. 20%

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13
Q

Mark recently sold some shares and made a taxable gain of £5,000. If his taxable income for this tax year is £20,000 how much capital gains tax will he be required to pay?

A. £1,000
B. £2,500
C. £1,500
D. £500

A

D. £500

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14
Q

Which class or classes of national insurance contributions do self-employed people pay?

A. Class 1
B. Class 4
C. Class 2
D. Class 2 and Class 4

A

D. Class 2 and Class 4

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15
Q

Gilts with 10 years to run before their redemption date are known as:

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

A

C. medium-dated

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16
Q

If a company was to distribute 20% of its profits in dividends, what would its dividend cover be?

A. 50
B. 10
C. 20
D. 5

A

D. 5

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17
Q

Grace receives income from her National Savings Income Bond. She receives the income:

A. gross but it may be liable to income tax if the amount exceeds the savings allowance amount.

B. gross with no potential liability to income tax.

C. net of basic rate tax with a potential further liability for higher rate tax payers.

D. net of basic rate tax but with no further liability to tax.

A

A. gross but it may be liable to income tax if the amount exceeds the savings allowance amount.

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18
Q

What is the MINIMUM age at which William can access the equities element of an ISA?

A. 16
B. 18
C. 21
D. Any-age

A

B. 18

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19
Q

Mary is retired and wishes to invest in a tax-free savings product. Which one of the following would satisfy this wish?

A. Gilt-edged security
B. NS&I Income Bonds
C. Premium Bonds
D. A unit trust

A

C. Premium Bonds

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20
Q

What does it mean when a gilt stock is quoted as ‘ex-div’?

A. Dividends will have been paid out within the last 5 weeks

B. The price of the stock is frozen until after the next dividend payment

C. The seller will receive the next interest payment

D. The purchaser will receive the next interest payment

A

C. The seller will receive the next interest payment

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21
Q

The risk of investment fluctuations can be reduced through which feature of the investment process?

A. Clustering
B. Dynamisation
C. Diversification
D. Gearing

A

C. Diversification

22
Q

What is the maximum amount that can be invested into Premium Bonds:

A. £ 40,000
B. £ 50,000
C. £ 15,240
D. £ 25,000

A

B. £ 50,000

23
Q

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

A. 20% income tax on interest received
B. 40% income tax on interest received
C. capital gains tax at maturity
D. marginal rate income tax at encashment

A

A. 20% income tax on interest received

24
Q

Which one of the following statements about Child Benefit is correct?

A. It can continue up to and including age 19 if the child is in full time education

B. It is only available until children are 16 years old

C. Payments for each child are the same

D. Payments are dependent on the parents having made sufficient NIC contributions

A

A. It can continue up to and including age 19 if the child is in full time education

25
Q

Steve, aged 47, joined his present occupational pension scheme in 1993 and now earns £120,000 per annum. Which of the following is currently unavailable to him?

A. SERPS
B. Personal Pension
C. AVC
D. FSAVC

A

A. SERPS

26
Q

Which one of the following features existing under some personal pension plans is NOT permitted under a stakeholder pension?

A. Unitised with profits fund
B. Tax free cash
C. Exit charges
D. Contracting out

A

C. Exit charges

27
Q

How would the payments from a Critical Illness Cover policy be BEST described?

A. Lump sum
B. An annuity
C. Lifelong
D. Replacement income

A

A. Lump sum

28
Q

Which one of the following CANNOT be a trustee of a unit trust scheme?

A. A clearing bank
B. A life company
C. The fund manager
D. A firm of accountants

A

C. The fund manager

29
Q

How are shares in an open-ended investment company priced?

A. There is a bid and offer price based on the underlying value of the shares

B. The shares are based on an historic valuation

C. There is one price based on the value of the assets divided by the number of shares

D. There is a cancellation price at which all shares are traded

A

C. There is one price based on the value of the assets divided by the number of shares

30
Q

Under the terms of a split capital investment trust, what minimum percentage of the income generated by the portfolio is allocated to the income shares?

A. 45%
B. 100%
C. 80%
D. 90%

A

B. 100%

31
Q

What are the tax benefits of a group personal accident and sickness scheme arranged by an employer?

A. The employees may claim tax relief against the premiums

B. The employer may offset premiums against corporation tax

C. The employer’s National Insurance Contributions are reduced

D. The premiums will not be classed as a taxable benefit in kind for the employee

A

B. The employer may offset premiums against corporation tax

32
Q

Which one of the following is true of a second mortgage?

A. It must not be greater than the first mortgage
B. It must be less than £25,000
C. It will usually be with a different lender
D. It will be split between the existing lender and the new one

A

C. It will usually be with a different lender

33
Q

The interest rate on a base rate tracker mortgage is usually:

A. fixed within a range above and below the base rate.
B. higher than the base rate.
C. lower than the base rate.
D. matched to the base rate subject to annual reviews.

A

B. higher than the base rate.

34
Q

Under a home income scheme or lifetime mortgage, how is the outstanding loan normally repaid?

A. By income from a purchased life annuity
B. From the proceeds of the sale of the house after the borrower’s death
C. By the borrower’s relatives after his death
D. From the proceeds of a whole-of-life policy

A

B. From the proceeds of the sale of the house after the borrower’s death

35
Q

In which one of the following ways does a unit-linked endowment differ from a traditional with profits endowment?

A. There is no guaranteed sum assured at maturity
B. A higher capital gains tax liability applies.
C. Joint life plans are not available
D. A death benefit applies throughout the term

A

A. There is no guaranteed sum assured at maturity

36
Q

Clive at age 27 started a stakeholder pension plan for the minimum term, which he intended to use to repay the capital under his interest only mortgage. His stated occupation is office manager. The minimum term of the mortgage will be:

A. 20 years
B. 23 years
C. 25 years
D. 28 years

A

D. 28 years

37
Q

What is the main attraction of a capped interest rate option when taking out a mortgage?

A. If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling

B. Interest rates are linked to the Bank of England base rate

C. The amount payable is fixed for the duration of the capped rate

D. There is a genuine discount off the normal variable mortgage interest rate

A

A. If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling

38
Q

What is the advantage of including benefit statements when making a product presentation to a client?

A. It enables the adviser to focus on the sale rather than client queries

B. It enables the client to better understand how this product will meet his needs

C. It ensures that all point of sale FSA regulatory requirements are met

D. It ensures that the client understands the cancellation rights offered by the product

A

B. It enables the client to better understand how this product will meet his needs

39
Q

Which of the following financial needs usually becomes the priority on becoming a parent?

A. Investment
B. Protection
C. Pensions
D. Savings

A

B. Protection

40
Q

Of the information gathered below, in respect of Alice, which item represents a hard fact?

A. Her investment portfolio performance has been below expectations
B. Her savings account balance has fallen to £5,000
C. She plans to retire by the age of 60
D. She wishes to be financially secure when she retires

A

B. Her savings account balance has fallen to £5,000

41
Q

Brian is reviewing a range of investment products before selecting the most appropriate solution for his client, Claire. Which factor is the LEAST likely to take into account when selecting an appropriate solution?

A. The possibility of Claire getting married in the future and having children

B. Claire’s existing portfolio of investment products

C. The fact that she has recently moved into a higher rate tax bracket

D. Claire’s desire to access her investments in five years to purchase a time share in Portugal

A

A. The possibility of Claire getting married in the future and having children

42
Q

For an investment to grow in real terms, it must increase in value:

A. after allowing dealing costs
B. at a rate greater than inflation
C. at regular intervals
D. in line with national average earnings

A

B. at a rate greater than inflation

43
Q

Which one of the following is true in relation to the manager of an investment trust?

A. He cannot borrow funds
B. He can issue more units or repurchase units according to demand
C. He can borrow to improve income and capital growth
D. He can cancel units if the fund value falls sharply

A

C. He can borrow to improve income and capital growth

44
Q

Any loss made by a partnership is usually:

A. deducted from future dividends
B. the responsibility of the partners
C. the responsibility of the shareholders
D. written off

A

B. the responsibility of the partners

45
Q

Stewart wants to start a whole-of-life assurance, which will also provide critical illness cover. Which specific type of plan should he choose?

A. Flexible
B. With-profit
C. Unit-linked
D. Universal

A

D. Universal

46
Q

When acting as the agent of a principal, it is a fundamental rule that:

A. a principal is always responsible for the acts of the agent
B. a principal must ratify the acts of the agent
C. an agent can conclude contracts on behalf of the principal
D. an agent is always responsible for the acts of the principal

A

C. an agent can conclude contracts on behalf of the principal

47
Q

Walter and Winnie own their house on a joint tenant’s basis. If Walter dies:

A. his share of the property will pass automatically to Winnie
B. Winnie will need to purchase Walter’s share of the property
C. his share will pass to whoever is nominated in his will
D. Winnie will own 50% of the property but retain an interest in the other 50%.

A

A. his share of the property will pass automatically to Winnie

48
Q

The difference between a lasting power of attorney and an ordinary power of attorney is that:

A. a lasting power of attorney can be revoked at any time by the donor, whereas an ordinary power of attorney can only be revoked by the Court of Protection

B. an ordinary power of attorney becomes invalid if the donor becomes mentally incapable, whereas a lasting power of attorney remains effective.

C. a lasting power of attorney can be agreed on a verbal basis between donor and donee but ordinary power of attorney must be registered at the Public Trust Office

D. an ordinary power of attorney remains valid if the donor becomes mentally incapable whereas a lasting power of attorney becomes invalid.

A

B. an ordinary power of attorney becomes invalid if the donor becomes mentally incapable, whereas a lasting power of attorney remains effective.

49
Q

Tom was declared bankrupt in June 2015. For how long will his bankruptcy order remain in place?

A. Until June 2019
B. Until June 2018
C. Until June 2016
D. Until June 2017

A

C. Until June 2016

50
Q

When land is owned by two or more parties, what is the term where each party owns a defined share of that land?

A. Joint tenancy
B. Joint ownership
C. Joint and several
D. tenancy in common

A

D. tenancy in common

CeMAP 1 (25 decks)

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