Test

Question 1

From the companies listed in the table below, which has the lowest price earnings ratio?

Company Share price Earnings per share
W 110p 10p
X 111p 12.5p
Y 78p 5.55p
Z 52p 4.25p

A. Company W
B. Company X
C. Company Y
D. Company Z

Answer 1

B. Company X

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Question 2

Alex’s investment portfolio contains the following assets

A high-yield corporate bond fund
Several directly-held gilts
An investment grade corporate bond fund
A debenture issued by a commercial property company

When considering how these assets are benchmarked, the

A debenture will be referenced against the London Interbank Offered Rate(LIBOR)
B gilts may be referenced against different maturity benchmarks.
C high-yield fund will be referenced against the FTSE All-Share Index.
D investment grade fund will be referenced against the Bank of England base rate.

Answer 2

B gilts may be referenced against different maturity benchmarks.

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Question 3

Emily, a first-time buyer, is looking to purchase a property for £523,000. She has agreed a reduced price of £476,000. How much Stamp Duty Land Tax has she therefore saved on the purchase?

A £2,350
B £3,500
C £6,640
D £7,350

Answer 3

D £7,350

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Question 4

Sarah is evaluating the correlation of three equity funds, as per the following table

           W         X        Y        Z
W        -        +0.8    -0.2    +0.1
X      +0.8       -       +0.4    -0.9
Y       -0.2    +0.4       -       -0.3
Z       +0.1     -0.9    -0.3        -

If Sarah wants the greatest positive correlation, which two funds should she purchase?

A W and X
B W andY
C X and Z
D Y and Z

Answer 4

A W and X

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Question 5

David purchased an investment property for £375,000, with additional transaction costs of £15,000. The rent has been set at £1,600 per month and David has estimated that ongoing costs and expenses will be 10% of the rent. Assuming David’s predictions are correct, what will the net yield on this purchase be?

A 4.43%
B 4.60%
C 4.92%
D 5.12%

Answer 5

A 4.43%

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Question 6

A retail client is considering investing in precious metals and has identified two collective investments as per the following table

Fund Structure Asset
Exchange Traded Fund (ETF) Physically backed Copper
Exchange Traded Commodity (ETC)Synthetic Gold

In respect of the risks associated with them, she should be aware that

A the ETC may expose her to additional counterparty risk.
B she will have to pay an additional charge to the ETC for the storage costs of the underlying
investment.
C she will have to hold both on a direct basis as neither can be held within a stocks and shares ISA.
D the ETF will always have greater liquidity risk because of the economic sensitivity of the underlying investment.

Answer 6

A the ETC may expose her to additional counterparty risk.

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Question 7

A client is using a limited company to purchase a residential property for £2,400,000. What would be the Stamp Duty Land Tax liability on this transaction?

A £201,750
B £285,000
C £288,000
D £360,000

Answer 7

D £360,000

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Question 8

A retail client has just purchased three investments, as shown in the following table

Amount Investment
£10,000 UK investment trust
£50,000 Commercial property fund
£4,900 UK direct equity holding

From this information, it can be deduced that

A the purchase of the direct equity was exempt from Stamp Duty Reserve Tax.
B the commercial property fund will have the most volatile price.
C the net asset value of the investment trust may be more than £10,000.
D both the equity assets will be priced on a daily basis.

Answer 8

C the net asset value of the investment trust may be more than £10,000.

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Question 9

An investor pays £126.85 clean price for £100 nominal value of stock with an 8% coupon. The stock has exactly five years to run to maturity when purchased. From these circumstances and using the simplified method, it can be deduced that the

A redemption yield is 2.07%.
B redemption yield is 1.60%.
C running yield is 1.26%.
D running yield is 2.07%.

Answer 9

A redemption yield is 2.07%.

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Question 10

A company makes a net profit of £1,000,000. It pays £250,000 interest to bondholders and wishes to retain £400,000 as cash reserves. If it elects to pay the balance as a dividend, what would be the dividend cover?

A 1.33
B 1.67
C 2.14
D 2.86

Answer 10

C 2.14

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Question 11

A retail client wants to sell a conventional gilt he owns. The gilt is showing both clean and dirty prices. The client should be aware that the

A clean price assumes that the gilt is held until redemption.
B clean price assumes that the seller retains the accumulated interest to the date of the sale.
C dirty price assumes that the buyer receives the accumulated interest.
D dirty price assumes the maximum spread that can be charged by the market maker on the sale.

Answer 11

C dirty price assumes that the buyer receives the accumulated interest.

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Question 12

Adrian is keen to purchase shares in a company traded on AIM. He should be aware that

A all dividends received are not subject to the dividend allowance.
B shares traded on AIM are not eligible to be held within a stocks and shares ISA.
C the shares will be exempt from Capital Gains Tax after five full years of holding.
D the shares will be exempt from Inheritance Tax after two full years of holding.

Answer 12

D the shares will be exempt from Inheritance Tax after two full years of holding.

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Question 13

The returns on four deposit accounts are as follows

Account Amount invested Gross interest Penalty
per annum
W £5,000 4.00% 90 days loss
X £10,000 3.00% 45 days loss
Y £15,000 3.25% 60 days loss
Z £20,000 2.50% 30 days loss

Which account has the highest early withdrawal penalty, in monetary terms, if fully encashed after one year of investment?

A Account W.
B Account X.
C Account Y.
D Account Z.

Answer 13

C Account Y.

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Question 14

Laurens is looking to purchase four different investments, as shown in the following table

Type Dealing terms
Open-ended investment 5% dilution levy
company (OEIC)
With-profits assurance 4% bid-offer spread and 10%
bond Market Value Reduction
Investment trust 8% discount to net asset
value
Unit trust 3% bid-offer spread

Which investment would offer him the best value upon purchase?

A The OEIC.
B The with-profits assurance bond.
C The investment trust.
D The unit trust.

Answer 14

C The investment trust.

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Question 15

The key difference between a fixed charge and a floating charge debenture is that

A assets subject to a fixed charge may be sold without the consent of the charge holder.
B assets subject to a floating charge can never be sold as part of the company’s normal trading.
C the cost of a floating charge fluctuates in line with the base rate.
D a fixed charge has a higher priority than a floating charge for payment.

Answer 15

D a fixed charge has a higher priority than a floating charge for payment.

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