Test

Question 1

Samuel is a fund manager who has recently purchased a FTSE 100 call option from the fund’s assets. The risk he is taking is:

Select one:

a. limited to the premium he paid for the option.
b. limited to the transaction costs.
c. unlimited.
d. limited to the premium he paid for the option, plus transaction costs.

Answer 1

d. limited to the premium he paid for the option, plus transaction costs.

chapter reference 8H2A

Question 2

A structured product is typically based on combining two investment instruments within the wrapper of the product. These are a:

Select one:

a. zero-coupon bond and a call option.
b. zero-dividend preference share and a put option.
c. zero-dividend preference share and a call option.
d. zero-coupon bond and a put option.

Answer 2

a. zero-coupon bond and a call option.

chapter reference 8K1

Question 3

The main investment objective of an absolute return fund is to achieve a positive absolute return:

Select one:

a. in all market conditions.
b. when markets are rising.
c. by ensuring all fund managers adopt the same investment strategy.
d. when markets are falling.

Answer 3

a. in all market conditions.

chapter reference 8J

Question 4

Jun Su, a higher-rate taxpayer, has made a capital gain on his venture capital trust after 4 years. If he encashes the plan now he will:

Select one:

a. potentially pay capital gains tax and must repay any income tax relief originally received.
b. pay no capital gains tax but must repay any income tax relief originally received.
c. pay income tax only on the growth over the period.
d. pay capital gains tax with no repayment of income tax relief originally received.

Answer 4

b. pay no capital gains tax but must repay any income tax relief originally received.

chapter reference 8D2A

Question 5

Christos has 101% of the value of his investment as life cover. His product is most likely to be a[n]:

Select one:

a. structured product.
b. investment bond.
c. ISA.
d. investment trust.

Answer 5

b. investment bond.

chapter reference 8A15

Question 6

In order to meet stakeholder standards, a stocks and shares ISA must meet which of the following conditions?

Select one:

a. There can be no more than a 2% bid/offer spread on the prices quoted.
b. No more than 70% of the fund can be invested in shares and property.
c. The minimum investment cannot be higher than £20.
d. The annual charge is limited to 1% of the fund during the first ten years, and 1.5% for the remainder of the term.

Answer 6

c. The minimum investment cannot be higher than £20.

chapter reference 8E9A

Question 7

Why might an individual invest in a real estate investment trust [REIT]?

Select one:

a. All payments from a REIT are paid gross so there is no need for non-taxpayers to reclaim any tax deducted at source.
b. It is a more liquid way of investing directly in commercial property.
c. All income or growth generated from the investment will always be tax-exempt.
d. It provides a guaranteed rate of return.

Answer 7

b. It is a more liquid way of investing directly in commercial property.

chapter reference 8C4

Question 8

Sanjay is a financial adviser for a trust. The trustees have approached him for advice about placing funds in an investment bond. Sanjay is UNLIKELY to advise that:

Select one:

a. investment bonds provide a wide variety of funds to meet a range of risk requirements.
b. the taxation within the underlying funds of an investment bond is more than the trust would normally be subject to.
c. this type of policy does not generate a taxable income, and so will substantially reduce the amount of administration for the trustees.
d. up to 5% of the original investment can be withdrawn by the trustees each year and paid to a beneficiary with no immediate tax liabilities for the trustees.

Answer 8

b. the taxation within the underlying funds of an investment bond is more than the trust would normally be subject to.

chapter reference 8A19

Question 9

Kenneth has bought a European-style call option with an expiry date in 3 months’ time. The alternatives available to him at present do NOT include:

Select one:

a. exercising the option immediately.
b. letting the option expire worthless.
c. exercising the option on the expiry date.
d. selling the option.

Answer 9

a. exercising the option immediately.

Question 10

John’s income tax liability for 2020/21 is £25,000 and for 2019/20 it was £28,000. If he invests £500,000 into an enterprise investment scheme in October 2020, the maximum income tax relief he could receive is:

Select one:

a. £25,000.
b. £150,000.
c. £53,000.
d. £28,000.

Answer 10

c. £53,000.

Question 11

In hedging his portfolio, an investment manager has a traded call option. The characteristics of this type of investment means that:

You must select ALL the correct options to gain the mark:

a. the investment manager can sell the option before it expires.
b. the investment manager must hold the option until it expires.
c. the duration to its expiry is not relevant to its value.
d. the greater the increase in its price, the greater the intrinsic value.
e. this gives the investment manager the right to sell the underlying asset.

Answer 11

a. the investment manager can sell the option before it expires.
d. the greater the increase in its price, the greater the intrinsic value.

chapter reference 8H2B

Question 12

Sandra is a higher-rate taxpayer earning £56,000 and her husband John is a basic-rate taxpayer earning £22,000. They have always lived in the UK and have both cashed in offshore bonds making gains of £10,000 each. Assuming they have both already utilised their respective personal savings allowances, how much is their combined income tax liability in respect of these gains?

Select one:

a. £6,000.
b. £8,000.
c. £4,000.
d. £2,000.

Answer 12

a. £6,000.

chapter reference 8A20

Taxation of a gain on an offshore bond

For a basic- or higher-rate taxpayer, the whole gain is charged at the basic rate of 20%. If the policy holders income is not sufficient to reach the basic rate band, any part of the gain that falls within the personal allowance would not be subject to tax.

As chargeable events are subject to the savings rate of income tax, the starting rate of 0% will apply; where the taxpayer’s non-savings income is less that the starting rate limit for savings (£5,000 in 2020/21), the income is not taxed. The personal savings allowanc (PSA) can also be used to offset tax due.

Be aware:

Taxation of UK policyholders

UK policy holders with offshore policies are liable to income tax at their highest rate on the whole of their gain, with time appointment relief for any periods spent outside the UK during the term of the policy.

Sandra, higher rate taxpayer = £10,000 taxed at 40% = £4,000 charge

John, basic-rate taxpayer = £10,000 taxed at 20% = £2,000 charge

Question 13

Joseph can decide whether he exercises his right to sell an underlying asset at a certain price, at any time during a specified period. He has a[n]:

Select one:

a. European-style call option.
b. American-style call option.
c. European-style put option.
d. American-style put option.

Answer 13

d. American-style put option.

chapter reference 8H2B

Question 14

Tony has income tax liabilities of £42,000 in the current tax year and £45,000 in the previous tax year. What amount does he need to contribute to a venture capital trust in the current tax year to reduce these tax liabilities as much as possible?

Select one:

a. £290,000.
b. £140,000.
c. £150,000.
d. £200,000.

Answer 14

b. £140,000.

chapter reference 8D2A

For VCTs, The income tax liability for the previous year cannot be rebated.

Tax relief is 30%.

30% * 140,000 = £42,000

42,000/0.30 = £140,000

Question 15

The early surrender value of Steven’s life policy was £46,000, so he sold it on the second-hand market for £60,000 to Beryl. This means that:

Select one:

a. Beryl may have a liability to capital gains tax when the policy matures, or on prior disposal.
b. Steven will have to declare the difference between the surrender value and sale value on his tax return.
c. if the policy had run for less than 10 years when it was sold, it remains qualifying and Steven has no income tax to pay.
d. if the policy had run for more than three-quarters of its term when it was sold, it becomes non-qualifying.

Answer 15

a. Beryl may have a liability to capital gains tax when the policy matures, or on prior disposal.

chapter reference 8A27C

Taxation on the seller

If a qualifying policy is sold after at least ten years, or three-quarters of the term if sooner, the sale is not a chargeable event and there is no income tax.

If a qualifying policy is sold within the ten-year period, or three-quarter term, the sale is a chargeable event, and if the non-qualifying policy is sold, the sale is always a chargeable event.

If the seller is a higher- or additional-rate taxpayer, the gain is subject to higher or additional-rate income tax.

Question 16

Four clients hold different investment products. Which one of them would most likely benefit from pound-cost averaging?

Select one:

a. Caitlin, who is paying £300 a month into a cash ISA.
b. Whitney, who is paying £300 a month into a 10-year traditional with-profits endowment policy.
c. Olga, who is paying £300 a month into a unit trust, invested in a specialist growth fund.
d. Imani, who is paying £300 a month into a with-profits whole of life policy.

Answer 16

c. Olga, who is paying £300 a month into a unit trust, invested in a specialist growth fund.

chapter reference 8A10B

Question 17

SPS Limited has gross assets of £14.8 million. The maximum the company can raise from subscriptions to an enterprise investment scheme [EIS] is:

Select one:

a. £200,000.
b. £0.
c. £1,200,000.
d. £1,000,000.

Answer 17

c. £1,200,000.

chapter reference 8D1B

The gross assets of the company must not exceed £15m immediately before the issue or shares, nor £16m immediately afterwards.

Question 18

When he surrendered his single premium unitised with-profits bond, Ross received a lower value than he expected. The most likely reason is because:

Select one:

a. explicit charges were applied because he surrendered within 5 years of taking out the policy.
b. explicit charges were applied because he surrendered within 10 years of taking out the policy.
c. a percentage of the annual bonuses were deducted from the surrender value.
d. a market value reduction was applied.

Answer 18

d. a market value reduction was applied.

chapter reference 8A2B

Question 19

Barton Investments’ hedge fund always adopts a market-neutral strategy. This fund is referred to as a[n]:

Select one:

a. event-driven fund.
b. tactical trading fund.
c. relative value fund.
d. long/short fund.

Answer 19

c. relative value fund.

chapter reference 8I1D

Relative value funds are often referred to as adopting ‘market neutral’ strategies because there is no market-related element in their returns. Instead, the managers rely on arbritage to produce returns, i.e. by indentifying and exploiting pricing anomalies between similar investments or combinations of investments. Although these strategies usually have limited volatility, they can still suffer when market liquidity dries up.

Question 20

Lindsey, an additional-rate taxpayer, invested £80,000 in an onshore investment bond. After six and a half years she makes her first withdrawal of £30,000. The income tax liability as a result of this withdrawal will be:

Select one:

a. £500.
b. £1,500.
c. £1,000.
d. £3,000.

Answer 20

a. £500.

chapter reference 8A25C

For partial withdrawals, the chargeable gain is determined at the end of each policy year, when all withdrawals for the year are added together…

Up to 5% of the original investment may be withdrawn each policy year without attracting a tax liability all the time.

For example:

• The potential liability is deferred until encashment or death.
• If the allowance is not used in any one year, it may be carried forward on a cumulative basis for future years.
• The allowance is treated as a return of the investors capital, and applies until the total of all withdrawals covered by the cumulative 5% allwance equals the original investment.

Question 21

Julian, a 69 year old retired teacher, has a non-qualifying endowment policy. Examples of a chargeable event would include:

You must select ALL the correct options to gain the mark:

a. his death.
b. maturity of the plan.
c. switching of funds within the plan.
d. surrendering the plan.
e. assignment to his wife by way of a gift.

Answer 21

a. his death.
b. maturity of the plan.
d. surrendering the plan.

chapter reference 8A25C

Question 22

Peter has just invested in a enterprise investment scheme. Assuming this is appropriate for his needs, this will be attractive to him because:

You must select ALL the correct options to gain the mark:

a. he can shelter gains from the disposal of his former business.
b. it will provide him with 30% income tax relief against his tax liability.
c. if he holds the shares for one year, they will be free of inheritance tax.
d. it may produce tax-free dividends.
e. he can reduce his income tax liability by carrying back tax relief to the previous tax year.

Answer 22

a. he can shelter gains from the disposal of his former business.
b. it will provide him with 30% income tax relief against his tax liability.
e. he can reduce his income tax liability by carrying back tax relief to the previous tax year.

chapter reference 8D1A

Dividends from EIS companies are paid with a 10% non-reclaimable tax credit and are potentially liable to further income tax. Consequently, most EIS companies do not pay dividends as it is more tax efficient to roll up income as tax free growth.

Question 23

Edith is a client who is looking for a non-income producing investment. The options that will definitely meet her requirements include a[n]:

You must select ALL the correct options to gain the mark:

a. offshore reporting fund.
b. real estate investment trust.
c. structured product.
d. guaranteed growth bond.
e. unit trust with accumulation units.

Answer 23

d. guaranteed growth bond.
c. structured product.

chapter reference 8A15C/8K

Guaranteed growth bonds, while the bond it generates no income for the investor.

Structured Products, there is either a return of capital or income (rarely both), but not necessarily a 100% return of capital in all cases.

Question 24

An important difference between exchange-traded funds [ETFs] and exchange-traded notes [ETNs] is that only:

Select one:

a. ETFs hold a portfolio of actual investments.
b. ETFs are sensitive to changes in interest rates.
c. ETFs track an index.
d. ETNs give access to specialist market niches.

Answer 24

a. ETFs hold a portfolio of actual investments.

chapter reference 8B

Question 25

Property funds may only be held within an ISA if: Select one: a. the fund owns no properties directly, only shares in property companies. b. all the properties owned by the fund are in the UK. c. they do not restrict the investors' ability to access their funds. d. the fund is a real estate investment trust.

Answer 25

c. they do not restrict the investors' ability to access their funds. chapter reference 8C2 It is possible to hold funds that invest directly in property in an ISA, provided they do not restrict an investor's ability to access their funds.

Question 26

Gerald is an additional-rate taxpayer. If he invests £200,000 in an enterprise investment scheme [EIS], what tax benefits would he enjoy? You must select ALL the correct options to gain the mark: a. The EIS shares will qualify for 100% business relief if they are held for at least one year. b. A non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK income tax. c. Capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company. d. He will be able to carry back the full relief to the previous tax year provided he had a tax liability of at least £60,000 in the previous tax year. e. He can invest up to a further £800,000 in EIS investments by carrying back the investment up to three years.

Answer 26

b. A non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK income tax. c. Capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company. d. He will be able to carry back the full relief to the previous tax year provided he had a tax liability of at least £60,000 in the previous tax year. chapter reference 8D1A

Question 27

Mike died 20 months after investing into an enterprise investment scheme [EIS]. Which explanation best describes the tax treatment of his EIS shares on his death? Select one: a. The income tax relief given is recovered from the estate but the shares will qualify for IHT business relief. b. The income tax relief given is recovered from the estate and the shares will not qualify for IHT business relief. c. The income tax relief is not withdrawn but they will not qualify for IHT business relief. d. The income tax relief is not withdrawn and they will qualify for IHT business relief.

Answer 27

c. The income tax relief is not withdrawn but they will not qualify for IHT business relief. chapter reference 8D1A

Question 28

Which of Maria's clients is INELIGIBLE to invest in an ISA? Select one: a. Beryl, a retired British National resident in Spain. b. Bruce, a British army officer serving overseas. c. Karan, a retired Australian National permanently resident in the UK. d. Alan, a 17-year old UK-resident.

Answer 28

a. Beryl, a retired British National resident in Spain. chapter reference 8E2

Question 29

Kate is considering investing in a with-profit bond. She should be aware that: You must select ALL the correct options to gain the mark: a. over the last ten years, the returns on most with-profit policies have not provided a 'real return'. b. bonuses can smooth out returns in times of poor investment performance. c. she may benefit from additional profits should the life office demutualise in the future. d. a market value adjustment [MVA] will always be applied on her death. e. they provide investors who are relatively risk-averse with some exposure to the equity

Answer 29

b. bonuses can smooth out returns in times of poor investment performance. c. she may benefit from additional profits should the life office demutualise in the future. e. they provide investors who are relatively risk-averse with some exposure to the equity chapter reference 8A5 Advantages of a with-profit bond: - They provide investors who relatively risk-averse with some exposure to the equity markets - Bonuses are not directly linked to investment performance in the same way as with unit-linked policies, because it is possible for the life office to use its reserves. This produces a 'cushioning' effect which irons out the sharp rises and falls that characterise unit-linked investments. - With profit policies generally outstrip inflation. - In some cases, they allow investors to participate in the profits of the insurance company's trading activities. - Ownership of a mutual life office's with-profit policies represents ownership rights in the office itself. These should generate either additional profits or shares if the company is demutualised.

Question 30

When investing in an absolute return fund, an investor should be aware that the fund: You must select ALL the correct options to gain the mark: a. is likely to have a similar investment strategy to other absolute return funds. b. may invest in commodities and private equity. c. will look to match the performance of a market index. d. may use derivatives to protect against downside risk. e. will always have a high proportion of equity investments.

Answer 30

b. may invest in commodities and private equity. d. may use derivatives to protect against downside risk. chapter reference 8J

Question 31

A hedge fund which relies on arbitrage to produce returns is known as which type of fund? Select one: a. Relative value. b. Event driven. c. Trading strategies. d. Long/short.

Answer 31

a. Relative value. chapter reference 8I1D **Relative value funds** are often referred to as adopting 'market neutral' stragegies because there is not market-related element in their returns. Instead, the managers rely on arbitrage to produce returns, i.e. by indentifying and exploiting pricing anomalies between similar investments or combinations of investments. Although these strategies usually have limited volatility, they can still suffer when market liquidity dries up.

Question 32

Stefan pays £200 a year into his friendly society policy. Anita also has a friendly society policy into which she pays £20 per month. If Stefan and Anita continue to pay their premiums by the same frequency, how much can they increase their regular premiums by whilst retaining the tax-exempt status of their policies? Select one: a. Stefan is already paying the maximum but Anita can increase by £5. b. Stefan can increase by £70 and Anita can increase by £5. c. Neither of them can increase their premiums without losing their tax-free status. d. Stefan can increase by £50 and Anita can increase by £10.

Answer 32

b. Stefan can increase by £70 and Anita can increase by £5. chapter reference 8A24 The limit applies to the total of all friendly society policies owned by an individual. Existing policies can be increased up to the £270 limit without losing the tax-free status.

Question 33

Phil is surrendering his maximum investment plan and has received the proceeds tax-free. This is because he surrendered the plan: Select one: a. after 6 years with an original term of 8 years. b. after 5 years. c. after 9 years with an original term of 12 years. d. after 7 years with an original term of 11 years.

Answer 33

c. after 9 years with an original term of 12 years. chapter reference 8A25B A surrender within the first ten years, or three-quarters of the term if sooner, can be subject to income tax because it is a chargeable event.

Question 34

Mehmet is interested in using exchange-traded funds to enhance the diversification of his portfolio. He should be aware that: Select one: a. some have additional risk via synthetic replication, but this type will always avoid any tracking error. b. some have additional risk via synthetic replication and they all are likely to experience a degree of tracking error. c. they all fully replicate the index they are tracking and this means they will avoid any tracking error. d. they all use sampling rather than full replication and they all are likely to experience a degree of tracking error.

Answer 34

b. some have additional risk via synthetic replication and they all are likely to experience a degree of tracking error. chapter reference 8B1

Question 35

One of the main differences between Child Trust Funds [CTFs] and Junior ISAs is: Select one: a. the options for the child when they reach the age of 16 or 18. b. that only CTFs have a stakeholder option. c. the subscription limits. d. the underlying investments available.

Answer 35

b. that only CTFs have a stakeholder option. Chapter reference 8E14 There are three basic types of CTF account: 1. Savings; 2. Share accounts; and 3. Stakeholder accounts.

Question 36

A cereal manufacturer is about to place an order for wheat which will be delivered and priced in twelve months' time. What action could they take to agree the price at the time of placing the order? Select one: a. Sell a futures contract. b. Buy a call option. c. Sell a call option. d. Buy a futures contract.

Answer 36

d. Buy a futures contract. chapter reference 8H1A

Question 37

The holder of an option is NOT able to: Select one: a. sell the option prior to expiry. b. exercise the option. c. let the option expire worthless. d. defer any decisions until after the strike date.

Answer 37

d. defer any decisions until after the strike date. chapter reference 8H2B

Question 38

What type of structured product, once issued, is listed on the London Stock Exchange? Select one: a. Precipice bond. b. Investment note. c. Warrant. d. Exchange traded note.

Answer 38

b. Investment note. chapter reference 8K2

Question 39

Kevin's life assurance policy will be deemed a qualifying policy if: You must select ALL the correct options to gain the mark: a. the premiums Kevin pays in any one year are not more than double those payable in any other year. b. its term is at least ten years. c. Kevin is a UK-resident in the year of encashment. d. the premiums Kevin pays are at least £20 per month or £200 per annum. e. the minimum level of life assurance cover is 100% of the total premiums payable.

Answer 39

a. the premiums Kevin pays in any one year are not more than double those payable in any other year. b. its term is at least ten years. chapter reference 8A25B Qualifying policies - policy term must be at least 10 years - premiums must be payable annually or more frequently for at least 10 years (or until a claim on death or disability). - minumum level of life assurance cover is 75% of the total premiums payable; - premiums payable in any one year must not be more than double those payables in any other year; and - no premium is to be more than one-eighth of the total premiums payabe over the term of the policy. The annual limit for premiums payable under qualifying policies (that are not exempt) is £3,600.

Question 40

Counterparty risk is mostly associated with: Select one: a. OEICs. b. structured products. c. unit trusts. d. investment bonds.

Answer 40

b. structured products. chapter reference 8K4

Question 41

Matthew has an investment which allows him to select a quarterly guaranteed level of protection. This is likely to be a: Select one: a. distribution bond. b. capital protected annuity. c. capital protected fund. d. protected equity bond.

Answer 41

d. protected equity bond. chapter reference 8A18 Protected equity bonds Protected equity bonds allow investors to select a quarterely guaranteed level of protection.

Question 42

Steven owns shares in three different companies with a total value of £25,000. By switching these shares into unit trusts he will be able to: You must select ALL the correct options to gain the mark: a. reduce the overall costs. b. avoid any future capital gains tax liabilities. c. benefit from professional fund management. d. remove any systematic risk. e. gain exposure to a number of different types of securities.

Answer 42

c. benefit from professional fund management. e. gain exposure to a number of different types of securities. chapter reference 8M2A/8M2B

Question 43

Juliet is 18 and invested £5,000 in a stocks and shares ISA on 5 June 2020. How much more can she invest in a cash ISA on 8 August 2020? Select one: a. £35,000. b. £20,000. c. Nil. d. £15,000.

Answer 43

d. £15,000. chapter reference 8E4

Question 44

Petra is considering investing in a property authorised investment fund [PAIF]. She should be aware that: You must select ALL the correct options to gain the mark: a. non-property income in the PAIF is subject to corporation tax at 20%. b. property related income is exempt from taxation in the fund. c. open ended investment companies can qualify as PAIFs. d. property related income is distributed to investors gross as equity income. e. she may receive three different types of distributions.

Answer 44

a. non-property income in the PAIF is subject to corporation tax at 20%. b. property related income is exempt from taxation in the fund. c. open ended investment companies can qualify as PAIFs. e. she may receive three different types of distributions. chapter reference 8C2A The property income is ring-fenced in the PAIF, but other taxable income is subjct to corporatio tax at 20%. Distributions made to ivnestors are split into three types of income: - Property income. This is usually paid net of 20% income tax (non-taxpayers can reclaim the tax or they can be paid gross, if the fund is held within an ISA or a pension wrapper, the income is also paid gross.) - Interest income. Distribitutions of interests are paid gross. - Diviedends.Paid without the deduction of any tax, i.e. they are also paid gross. Only OEICs can qaulify as PAIFs, so an authorised unit trust would have to convert to an OEIC.

Question 45

Esme, a basic-rate taxpayer, has sold a large buy-to-let property and has made a profit of £1.5 million. What is the capital gains tax position if she immediately reinvests this gain into eligible shares in a qualifying enterprise investment scheme? Select one: a. She can reinvest up to £1 million of the gain which is then exempt from capital gains tax after three years. b. She can reinvest the full gain and receive capital gains tax deferral relief, provided this is the only relief claimed. c. She can claim deferral relief on the full gain and whenever the deferred gains are eventually realised, she will need to pay 18% capital gains tax. d. She can claim deferral relief on up to £1 million of the gain but when she sells the EIS shares, she cannot reinvest and defer the capital gains tax liability again.

Answer 45

b. She can reinvest the full gain and receive capital gains tax deferral relief, provided this is the only relief claimed. chapter reference 8D1A Relief can be claimed up to a maximum of £2m invested in EIS Shares.

Question 46

Yusuf has purchased an investment that gives him the right but no obligation to buy some shares at a fixed price at a set date in the future. He has purchased a[n]: Select one: a. European-style put option. b. American-style call option. c. European-style call option. d. American-style put option.

Answer 46

c. European-style call option. chapter reference 8H2B

Question 47

John has recently become a widower. His wife, Huan, had a stocks and shares ISA valued at £40,000 when she died. If John had previously invested £7,000 in his own ISA earlier in the tax year what, if any, additional ISA subscription is John permitted to make in the current tax year? Select one: a. Nil. b. £60,000. c. £53,000. d. £13,000.

Answer 47

c. £53,000. chapter reference 8E13

Question 48

How is an onshore UK life assurance fund taxed? You must select ALL the correct options to gain the mark: a. Capital gains on shares and property are taxed at 20%. b. Interest from gilts is exempt from income tax. c. Dividends from UK companies are taxed at 20%. d. Gains on gilts and corporate bonds are exempt from capital gains tax. e. Non-savings income, such as rent, is received net of 20% notional tax

Answer 48

a. Capital gains on shares and property are taxed at 20%. d. Gains on gilts and corporate bonds are exempt from capital gains tax. chapter reference 8A25A Taxation of life assurance policies The taxation of life assurance funds is as follows: - Dividends are exempt from tax, whether from UK or overseas companies - All other income, such as interest from fixed-interest securities and cash, and rental income, is taxed at 20% - Gains on gilts and corporate bonds are exempt from corporation tax Capital gains on other assets, such as shares and property, are taxed at 20% after indexation allowance (capped to 31 December 2017)

Question 49

The White family comprises Mr and Mrs White and their two children aged 12 and 4. What is the maximum amount that can be paid per year by the family into friendly society policies if the premium is paid annually? Select one: a. £600. b. £1,200. c. £1,080. d. £540.

Answer 49

c. £1,080. chapter reference 8A24

Question 50

Terry is interested in a NYSE Liffe futures contract because they offer: You must select ALL the correct options to gain the mark: a. the right but not the obligation to buy or sell an underlying asset. b. security of settlement since they use the London Clearing House [LCH]. c. the ability to keep an open position for some time. d. exposure to an underlying asset in exchange for a margin payment.

Answer 50

b. security of settlement since they use the London Clearing House [LCH]. c. the ability to keep an open position for some time. d. exposure to an underlying asset in exchange for a margin payment. chapter reference 8H - NYSE Liffe uses the services of the London Clearing House (LCH), which stands between each counterparty of a futures contract to ensure that every contract is honoured. - The intitial margin acts as collateral that can be used, if needed, to fulfil either side of the contract, i.e. pay or deliver what has been promised.

Question 51

Ravinder is considering contributing to a Lifetime ISA [LISA]. He should be aware that: Select one: a. he is only able to invest his contributions into cash. b. the maximum Government bonus he can receive is £1,000 per year. c. he can claim a Government bonus from both this and an existing Help to buy ISA. d. subscriptions into LISAs are in addition to the normal ISA subscription limits.

Answer 51

b. the maximum Government bonus he can receive is £1,000 per year. chapter reference 8E10

Question 52

Gordon, an additional-rate taxpayer, has invested £150,000 in a venture capital trust [VCT]. As a result: You must select ALL the correct options to gain the mark: a. he will receive £45,000 tax relief on his investment. b. his shares will qualify for IHT business relief as long as he keeps them for at least 2 years. c. he will receive dividends from his VCT gross. d. he will be able to offset any capital losses from the VCT as long as he keeps the shares for at least 5 years. e. he will only maintain the full income tax relief if he keeps the shares for at least 3 years.

Answer 52

a. he will receive £45,000 tax relief on his investment. c. he will receive dividends from his VCT gross. chapter reference 8D2

Question 53

Mr and Mrs Green have three children, Chris aged 20, Andy aged 16 and Linda aged 9. Which statements are correct in respect of their 2020/21 ISA allowances? You must select ALL the correct options to gain the mark: a. Mr and Mrs Green can each pay a total of £20,000 into cash ISAs, and £20,000 into stocks and shares ISAs. b. Three members of the family can pay into stocks and shares ISAs. c. The maximum that the family can pay into stocks and shares ISAs is £60,000. d. Andy can pay into a cash ISA and a Junior ISA in the current tax year. e. All three children have the same ISA allowances.

Answer 53

b. Three members of the family can pay into stocks and shares ISAs. d. Andy can pay into a cash ISA and a Junior ISA in the current tax year. chapter reference 8E2/8E4

Question 54

Josh is a non-taxpayer who has invested into a real estate investment trust. The distributions he receives from his investment will comprise: Select one: a. two elements, both of which will be paid net of 20% tax, which he can reclaim. b. one element paid net of 20% tax that cannot be reclaimed and one element paid with no tax deducted. c. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted. d. two elements, both of which will be paid gross with no further tax to pay.

Answer 54

c. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted. chapter reference 8C4A

Question 55

With an exchange-traded fund, an investor should be aware that: You must select ALL the correct options to gain the mark: a. management fees tend to be higher than other index-tracking investments. b. they are traded like a single share through stockbrokers. c. they are index-tracking funds. d. they are ineligible for inclusion in ISAs. e. no stamp duty is payable on purchases.

Answer 55

b. they are traded like a single share through stockbrokers. c. they are index-tracking funds. e. no stamp duty is payable on purchases. chapter reference 8B1

Question 56

Emma has decided to invest in a structured product because she: Select one: a. wants a product that reflects the returns available from an index that tracks UK house prices. b. requires the capital or income to be guaranteed. c. wants an underlying investment that is predominantly invested in equities. d. may need to take an early withdrawal.

Answer 56

b. requires the capital or income to be guaranteed. chapter reference 8K1

Question 57

Ian is invested in exchange-traded notes whereas Becky is invested in exchange-traded funds. What risk does Ian's investment carry which is NOT relevant to Becky's investment? Select one: a. Liquidity risk. b. Credit risk. c. Interest rate risk. d. Event risk.

Answer 57

b. Credit risk. chapter reference 8B3

Question 58

An investor considering investing in exchange-traded notes should be aware that they are: You must select ALL the correct options to gain the mark: a. usually index trackers. b. high yielding, so useful for income seekers. c. issued for a particular period of time. d. not affected by changes in the credit rating of the issuer. e. debt securities issued by banks.

Answer 58

a. usually index trackers. c. issued for a particular period of time. e. debt securities issued by banks. chapter reference 8B3

Question 59

George has an income tax liability in the current tax year of £50,000 and £100,000 for the previous tax year. If he wanted to eliminate this income tax liability, what is the minimum he must invest into an enterprise investment scheme? Select one: a. £2,000,000. b. £1,000,000. c. £150,000. d. £500,000.

Answer 59

d. £500,000. chapter reference 8D1A

Question 60

An option holder should be aware that an: Select one: a. at-the-money call option has intrinsic value only. b. at-the-money put option has no time value. c. out-of-the-money put option has no intrinsic value. d. in-the-money call option has time value but no intrinsic value.

Answer 60

c. out-of-the-money put option has no intrinsic value. chapter reference 8H2B

Question 61

Harry is a UK resident who is currently a basic-rate taxpayer. He is interested in investing in a recently launched guaranteed income bond. He should be advised that: You must select ALL the correct options to gain the mark: a. at the end of a fixed period, Harry's capital will be returned. b. it will produce an income but the amount may vary once the bond is set up. c. it will produce an income which is guaranteed at the outset. d. Harry will receive the income for a set period, usually up to five years. e. he should search the market before investing as there are usually a wide range of similar products available and he should ensure he gets the best rate.

Answer 61

a. at the end of a fixed period, Harry's capital will be returned. c. it will produce an income which is guaranteed at the outset. d. Harry will receive the income for a set period, usually up to five years. chapter reference 8A15A

Question 62

Elizabeth, George and Lucy have all invested into a venture capital trust. Elizabeth, a basic-rate taxpayer, invested £10,000; George, a higher-rate taxpayer, invested £50,000; and Lucy, an additional-rate taxpayer, invested £80,000. The total amount of income tax relief on these investments would be: Select one: a. £41,000. b. £60,000. c. £28,000. d. £42,000.

Answer 62

d. £42,000. chapter reference 8D2A

Question 63

Megarich Investment Group has set up an unauthorised investment trust as an offshore property company. What is the most likely reason for them to do this? Select one: a. To avoid liability to corporation tax, opting to be liable for capital gains tax instead. b. To enable its shares to be included in ISAs. c. To avoid liability to income tax on rental income from UK property. d. To enable it to invest all of its assets directly in property, rather than just through other property companies.

Answer 63

d. To enable it to invest all of its assets directly in property, rather than just through other property companies. chapter reference 8C3

Question 64

Kieran has been told that it is best if his investment bond is divided into a number of segments. This is because: Select one: a. it helps reduce the overall volatility of any investment Kieran may choose. b. the flexibility offered may help reduce the actual amount of income tax that may be due. c. it is easier to re-balance the whole investment using the different segments. d. the flexibility offered may help reduce the actual amount of capital gains tax that may be due.

Answer 64

d. the flexibility offered may help reduce the actual amount of capital gains tax that may be due. chapter reference 8A26

Question 65

Which of these investors could possibly trade their life assurance product on the second-hand policy market? You must select ALL the correct options to gain the mark: a. Gerry, who owns a with-profit endowment. b. Irene, who owns a distribution bond. c. Anne, who owns a with-profit bond. d. Laurence, who owns a unit-linked whole of life policy. e. Jo, who owns a guaranteed bond.

Answer 65

a. Gerry, who owns a with-profit endowment. c. Anne, who owns a with-profit bond. e. Jo, who owns a guaranteed bond. chapter reference 8A27

Question 66

After investing £2,000 in a cash ISA on 1 July 2020, what is the maximum that a 19-year old could invest in a stocks and shares ISA during the 2020/21 tax year? Select one: a. £13,240. b. £7,500. c. £20,000. d. £18,000.

Answer 66

d. £18,000. chapter reference 8E4

Question 67

David invested £20,000 into a single premium bond. In the first year he takes a partial surrender of £1,000 and in the second year he takes a partial surrender of £2,000. If he encashes the bond in the fifth year for £21,000, what will his chargeable gain be? Select one: a. £4,000. b. £1,000. c. £3,000. d. £5,000.

Answer 67

c. £3,000. chapter reference 8A25C

Question 68

Oliver, an additional-rate taxpayer, invested £200,000 into a venture capital trust in July 2020. He will be able to: Select one: a. offset any losses on the sale of the venture capital trust shares against other capital gains. b. reclaim any corporation tax deducted on any income received. c. claim up to £125,000 as an income tax reducer. d. receive any dividends exempt from income tax.

Answer 68

d. receive any dividends exempt from income tax. chapter reference 8D2A

Question 69

If Sarah wants to invest in peer-to-peer lending within her ISA, she should opt for a[n]: Select one: a. investment trust ISA. b. innovative finance ISA. c. derivative-based ISA. d. self-select ISA.

Answer 69

b. innovative finance ISA. chapter reference 8E10

Question 70

Gill invested £100,000 in a venture capital trust on 1 June 2020. The earliest she can sell the shares [to someone other than her spouse] in order to retain the income tax relief would be 1 June of what year? Select one: a. 2023. b. 2022. c. 2025. d. 2024.

Answer 70

c. 2025. chapter reference 8D2A

Question 71

Sarah and Henry are married and have three children, Ruth, aged 18, Lewis, aged 16 and James, aged 14. Ignoring Junior ISAs, what is the total amount the family can invest into cash ISAs in the 2020/21 tax year? Select one: a. £100,000. b. £80,000. c. £60,000. d. £40,000.

Answer 71

b. £80,000. chapter reference 8E4

Question 72

Exchange-traded notes [ETNs] differ from exchange-traded funds [ETFs] in that ETNs: Select one: a. do not actually contain a portfolio of investments. b. pay a higher income than ETFs. c. have less credit risk than ETFs. d. trade once a day at 11am.

Answer 72

a. do not actually contain a portfolio of investments. chapter reference 8B3

Question 73

Aida is considering buying a purchased life annuity [PLA] with her pension commencement lump sum. If she is a basic-rate taxpayer, the advantage to Aida of doing so would be that the: Select one: a. capital element of her PLA payments is paid free of tax if this falls within her personal savings allowance. b. PLA payments are paid gross and she has no further tax to pay as basic-rate tax is paid within the annuity fund. c. PLA payments are paid tax-free. d. capital element of her PLA payments is deemed to be a part return of her original capital and so is tax-free.

Answer 73

d. capital element of her PLA payments is deemed to be a part return of her original capital and so is tax-free. chapter reference 8G

Question 74

If Jung Soo is looking to set up a regular savings plan with a friendly society, he should be aware that: You must select ALL the correct options to gain the mark: a. the tax-exempt limit applies to each policy held by an individual. b. the maximum annual premium for tax-exempt business is £270. c. no income tax or capital gains tax are payable on the underlying funds. d. friendly societies are legally required to invest at least half their funds in safe securities. e. a child under 18 can have a tax-exempt policy.

Answer 74

b. the maximum annual premium for tax-exempt business is £270. c. no income tax or capital gains tax are payable on the underlying funds. e. a child under 18 can have a tax-exempt policy. chapter reference 8A24

Question 75

Paul intends to set up a regular premium endowment policy for investment purposes. In order that it is treated as a qualifying policy: You must select ALL the correct options to gain the mark: a. premiums payable in any one year must not be more than double those payable in any other year. b. the term must be at least 10 years. c. no premium should be more than one ninth of the total premiums payable over the term of the policy. d. premiums must be payable monthly. e. the minimum level of life assurance cover is 101% of the total premiums payable.

Answer 75

a. premiums payable in any one year must not be more than double those payable in any other year. b. the term must be at least 10 years. chapter reference 8A25B

Question 76

Neil owns a unit-linked investment policy. The returns available to him will depend on the: You must select ALL the correct options to gain the mark: a. exact days on which Neil effected the policy and cashed it in. b. extent of any Market Reduction. c. investment performance of the funds to which they are linked. d. input of the company actuary. e. claims experience of the insurance company.

Answer 76

a. exact days on which Neil effected the policy and cashed it in. c. investment performance of the funds to which they are linked. chapter reference 8A10

Question 77

Dolly has invested £50,000 into a seed enterprise investment scheme with the profits she made from the sale of a buy-to-let property. She will receive up to: Select one: a. 30% income tax relief and £25,000 of the gain will be exempt from capital gains tax. b. 50% income tax relief and £25,000 of the gain will be exempt from capital gains tax. c. 50% income tax relief and the entire gain will be exempt from capital gains tax. d. 30% income tax relief and the entire gain will be exempt from capital gains tax.

Answer 77

b. 50% income tax relief and £25,000 of the gain will be exempt from capital gains tax. chapter reference 8D1D

Question 78

If Hugo, who is 17, wishes to maximise all of his possible allowances to ISAs, what is the maximum possible investment in the current tax year? Select one: a. £9,000. b. £40,000. c. £20,000. d. £29,000.

Answer 78

d. £29,000. chapter reference 8E14A

Question 79

Which of these investors would benefit from investing in an offshore bond? You must select ALL the correct options to gain the mark: a. Sarah, who anticipates being a UK non-taxpayer on encashment. b. Joanna, who wishes to invest in fixed-interest and nil-yielding equities. c. Helen, who wishes to have an actively managed portfolio. d. Chardonnay, who wants to minimise her costs as much as possible. e. James, who anticipates being a UK additional-rate taxpayer on encashment.

Answer 79

a. Sarah, who anticipates being a UK non-taxpayer on encashment. b. Joanna, who wishes to invest in fixed-interest and nil-yielding equities. c. Helen, who wishes to have an actively managed portfolio. chapter reference 8A28C

Question 80

Sadie wishes to invest in either a property unit trust or a property investment trust. In deciding between these two investments she should be aware that: Select one: a. both can invest directly into property itself without restriction. b. the unit trust can invest directly in property itself; the investment trust is restricted to only a small percentage in direct property. c. only the investment trust can invest directly into property itself. d. neither can invest directly into property itself.

Answer 80

b. the unit trust can invest directly in property itself; the investment trust is restricted to only a small percentage in direct property. chapter reference 8C2

Question 81

Laura is advising her client in respect of the potential purchase of an endowment policy on the second-hand market. Her obligations to her client do NOT include: Select one: a. arranging for the life assured under the policy to be changed to her client. b. explaining the arrangements for assignment and safe keeping of the deed. c. ensuring her client understands the tax position of a second-hand life policy. d. giving her client a quotation of the life office's surrender value.

Answer 81

a. arranging for the life assured under the policy to be changed to her client. chapter reference 8A27A

Question 82

An investor considering an investment in a venture capital trust [VCT] or enterprise investment scheme [EIS] should be aware that: You must select ALL the correct options to gain the mark: a. any losses on VCT shares are allowable losses for capital gains tax purposes. b. knowing the income tax liability of the investor for the previous tax year can be significant for VCT investments. c. income tax relief is available for investments in qualifying VCT shares at the investor's highest rate. d. only an EIS offers deferral of capital gains tax. e. income tax relief is available for investments in a qualifying EIS at 30%.

Answer 82

d. only an EIS offers deferral of capital gains tax. e. income tax relief is available for investments in a qualifying EIS at 30%. chapter reference 8D

Question 83

A 'December 230p put option' on FGH plc ordinary shares is trading at 13p per share. The present price of FGH plc ordinary shares is 250p. The time value and intrinsic value will be: Select one: a. 250p and 230p respectively. b. 230p and 250p respectively. c. 13p and 0p respectively. d. 0p and 13p respectively.

Answer 83

c. 13p and 0p respectively. chapter reference 8H2B

Question 84

Clare, a non-taxpayer, wishes to invest directly into a real estate investment trust [REIT]. She should be aware that: You must select ALL the correct options to gain the mark: a. any dividend payment from the non-exempt element will be paid gross. b. a REIT is an open-ended investment vehicle. c. she will be able to reclaim the 20% tax deducted from the tax-exempt element. d. REITs must always be listed on the Alternative Investment Market. e. any capital gain will be subject to capital gains tax.

Answer 84

a. any dividend payment from the non-exempt element will be paid gross. c. she will be able to reclaim the 20% tax deducted from the tax-exempt element. e. any capital gain will be subject to capital gains tax. chapter reference 8C4A

Question 85

Kevin and Barbara are married and have four children, Gina and Tracy, aged 17, Wayne, aged 16 and Daisy, aged 4. If they are considering investing in ISAs: You must select ALL the correct options to gain the mark: a. Gina can pay into both a cash and a stocks and shares ISA. b. Kevin and Barbara can set up a joint stocks and shares ISA. c. Barbara can pay into a stocks and shares JISA for Daisy. d. Kevin can pay into a Lifetime ISA for Gina and Tracy. e. Wayne can pay into a cash ISA.

Answer 85

c. Barbara can pay into a stocks and shares JISA for Daisy. e. Wayne can pay into a cash ISA. chapter reference 8E

Question 86

Petra is considering investing £150,000 into a venture capital trust [VCT]. She should be aware that: You must select ALL the correct options to gain the mark: a. income tax relief would be withdrawn if the shares are disposed of within five years. b. she is within the annual investment limit. c. she could defer capital gains tax on previous gains by reinvesting the gain into a VCT. d. income tax relief is available at her highest marginal rate. e. any losses on VCT shares she makes are allowable losses for capital gains tax purposes.

Answer 86

a. income tax relief would be withdrawn if the shares are disposed of within five years. b. she is within the annual investment limit. chapter reference 8D2A

Question 87

Charlie has an investment bond currently valued at £240,000 and he is a basic-rate taxpayer. You have informed him that a chargeable event would occur in the event of: You must select ALL the correct options to gain the mark: a. Charlie's death. b. Charlie fully surrendering the bond. c. Charlie assigning the bond to his civil partner Derek, for no value. d. Charlie taking cumulative annual withdrawals below 5% of the original capital.

Answer 87

a. Charlie's death. b. Charlie fully surrendering the bond. chapter reference 8A25C

Question 88

Joseph, a fund manager, is considering the use of derivatives in a number of scenarios. Which strategies could achieve his objective? You must select ALL the correct options to gain the mark: a. Sell FTSE 100 futures and buy a long gilt futures contract to execute a short-term tactical asset allocation. b. Buy a put option to hedge against the market falling. c. Write a put option in anticipation of a fall in the stock market. d. Buy FTSE 100 futures if he expects to receive an injection of cash but doesn’t want to miss the market. e. Write a call option in anticipation of an imminent rise in the stock market.

Answer 88

a. Sell FTSE 100 futures and buy a long gilt futures contract to execute a short-term tactical asset allocation. b. Buy a put option to hedge against the market falling. d. Buy FTSE 100 futures if he expects to receive an injection of cash but doesn’t want to miss the market. chapter reference 8H3A/8H3B

Question 89

From a tax point of view, why is an investment into a venture capital trust attractive? Select one: a. Loss relief can be claimed on any losses. b. It will be exempt from inheritance tax on death once it has held for two years. c. Other capital gains can be rolled-over to defer paying capital gains tax. d. Any gain will be exempt from capital gains tax.

Answer 89

d. Any gain will be exempt from capital gains tax. chapter reference 8D2A

Question 90

A higher-rate taxpayer wishing to invest into a venture capital trust [VCT] should be aware that: You must select ALL the correct options to gain the mark: a. tax relief is not withdrawn if the shares are disposed of to anyone within five years of purchase. b. all gains arising on the disposal of VCT shares are fully chargeable to capital gains tax in the usual way. c. dividends not exceeding £200,000 are exempt from any additional income tax. d. any losses on VCT shares are not allowable losses for capital gains tax purposes. e. the rate of income tax relief for qualifying investments is 30%.

Answer 90

c. dividends not exceeding £200,000 are exempt from any additional income tax. d. any losses on VCT shares are not allowable losses for capital gains tax purposes. e. the rate of income tax relief for qualifying investments is 30%. chapter reference 8D2A

Question 91

Peter has recently received a payment from the non-exempt element of his real estate investment trust [REIT]. If this exceeds his remaining dividend allowance, as a higher-rate taxpayer he: Select one: a. is not liable for income tax at all on the dividend amount. b. is able to defer any income tax liability until he encashes the REIT. c. will have 32.5% income tax to pay on the amount received. d. will have 40% income tax to pay on the dividend amount.

Answer 91

c. will have 32.5% income tax to pay on the amount received. chapter reference 8C4A

Question 92

Sofia's taxable income is £100,000. If she surrenders her equity-based onshore bond realising a gain of £30,000, what additional tax will she be liable for? Select one: a. 20% income tax on the gain. b. 32.5% income tax on the gain. c. 28% capital gains tax on the gain, after allowing for her annual exemption. d. 40% income tax on the gain.

Answer 92

a. 20% income tax on the gain. chapter reference 8A21

Question 93

In order to make a profit from an anticipated rise in interest rates, a speculator would: Select one: a. buy long gilt futures. b. sell FTSE 100 futures. c. sell long gilt futures. d. buy FTSE 100 futures.

Answer 93

c. sell long gilt futures. chapter reference 8H3D

Question 94

What is the tax position of a onshore investment bond for a higher-rate taxpayer who recently invested £40,000? Select one: a. Tax deferred withdrawals can be taken indefinitely. b. If withdrawals are deferred for four years, then only £2,000 could be taken without incurring an immediate income tax liability. c. Any withdrawals of 5% or less of the current value of the bond are paid without any immediate liability to tax. d. A withdrawal of £2,000 a year may be made for 20 years without incurring an immediate income tax liability.

Answer 94

d. A withdrawal of £2,000 a year may be made for 20 years without incurring an immediate income tax liability. chapter reference 8A16

Question 95

Abdul is 67 and a higher-rate taxpayer. He is keen to invest £120,000 into a venture capital trust [VCT] to generate income in his retirement rather than investing in pensions, because: Select one: a. the charges are lower for VCTs. b. VCTs offer more stable growth than that of personal pensions. c. there is no further income tax charged on income from the VCT. d. VCTs offer higher income tax relief than pensions on the initial contribution.

Answer 95

c. there is no further income tax charged on income from the VCT. chapter reference 8D2A

Question 96

Helena, aged 17, and her friend Roula, 18, both wish to invest the maximum in ISAs. You would advise them that: Select one: a. only Helena can invest the maximum investment into a cash ISA. b. Helena must invest at least £20,000 in cash ISAs, the rest can be in stocks and shares ISAs. c. only Roula can invest in an innovative finance ISA. d. Roula must report any stocks and shares ISAs on her tax return.

Answer 96

c. only Roula can invest in an innovative finance ISA. chapter reference 8E

Question 97

Annual bonuses in a with-profits bond are: Select one: a. based on the overall share performance of the life company. b. guaranteed, regardless of market conditions. c. always reduced on the early surrender of the policy. d. based on the performance of the underlying assets in the fund.

Answer 97

d. based on the performance of the underlying assets in the fund. chapter reference 8A2A

Question 98

If a UK equity fund manager believes there is going to be a sharp downturn in the market they can protect the value of the fund by: Select one: a. buying futures or buying call options. b. selling futures or buying put options. c. selling futures or selling put options. d. buying futures or selling call options.

Answer 98

b. selling futures or buying put options. chapter reference 8H3B

Question 99

Paula is considering investing £14,000 into an exchange-traded fund. She should be aware that: Select one: a. rebalancing is rarely used when the assets within the index change. b. any growth will be exempt from capital gains tax. c. she will only pay 0.25% stamp duty. d. the whole investment can be utilised by her ISA allowance.

Answer 99

d. the whole investment can be utilised by her ISA allowance. chapter reference 8B1

Question 100

Tim owns a unitised with-profit fund whereas Joe owns a unit-linked fund. When comparing the two: You must select ALL the correct options to gain the mark: a. market value reductions may be applied to either fund. b. Tim's investment only may benefit from a terminal bonus. c. only Joe could be invested in more speculative areas such as emerging markets. d. Tim's is the only fund where the unit price is guaranteed not to fall.

Answer 100

b. Tim's investment only may benefit from a terminal bonus. d. Tim's is the only fund where the unit price is guaranteed not to fall. chapter reference 8A3