Test Questions Flashcards by Davis Geidans

4. A limited company has 6,000 ordinary shareholders. In the current financial year the profits attributable to these shareholders are £1,060,000 and ordinary dividend payments are £410,000. What is the dividend cover?
A. 2.46
B. 2.59 
C. 2.71 
D. 3.87

B. 2.59 - Learning Module 1

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6. The share price of company X is 260p and the earnings per share is 18p. The share price of company Y is 182p and the earnings per share is 31p. The price earnings ratios of companies X and Y respectively, would be
A. 14.44 and 5.87.
B. 5.87 and 14.44.
C. 6.92 and 17.03.
D. 17.03 and 6.92.

A. 14.44 and 5.87 - Learning Module 1

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John owns a number of fixed interest securities and is seeking clarification on the difference between the gross and net redemption yields. The principal difference is
A. the rate of internal taxation within the investment.
B. the tax treatment of the coupon, in the investor’s hands.
C. whether they purchased on a cum or ex dividend basis.
D. whether they were purchased on a direct or indirect basis.

B. the tax treatment of the coupon, in the investor’s hands - Learning Module 1

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Stacey, a first-time buyer, is about to complete on a property with a purchase price of £370,000. How much Stamp Duty Land Tax will she pay, if anything?
A. Nothing.
B. £3,500
C. £4,900 
D. £8,500

B. £3,500 - Learning Module 1

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10. Paulina purchases shares in two listed companies as per the following table Equity Purchase cost
X £9,800
Y £10,600
What total Panel on Takeovers and Mergers (PTM) levy will she pay? 
A. £1
B. £2
C. £10
D. £20

A. £1 - Learning Module 1

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The current price of share X is 247p and the earnings per share is 57p. The current price of share Y, in the same sector, is 206p and the earnings per share is 11p. In general terms, this indicates that
A. share X is more highly favoured by investors than share Y.
B. share X will provide better value than share Y.
C. share Y has higher expectations for growth than share X.
D. share Y is significantly underpriced.

C. share Y has higher expectations for growth than share X. - Learning Module 1

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An investment manager recently completed four UK-registered share purchases on the same day
Method Purchase Price
Crest £1,500
Crest £7,500
Stock transfer form £1,500
Stock transfer form. £7,500

          The total combined amount of Stamp Duty and Stamp Duty Reserve Tax payable on these transactions is
A. £90
B. £95
C. £180 
D. £184

B. £95 - Learning Module 1

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18. If the annual rate of inflation falls from 1.8% to 0.3%, this is an example of 
A. deflation.
B. disinflation.
C. fiscal loosening.
D. monetary loosening.

B. disinflation. - Learning Module 2

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20. In a period when interest rates have fallen substantially, the nominal value of a conventional fixed-interest security at maturity will
A. increase significantly.
B. decrease significantly.
C. remain constant.
D. increase in line with inflation.

C. remain constant. - Learning Module 2

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A key effect of globalisation on the UK economy is
A. an influx of overseas financial institutions via the passporting rules.
B. the reduced competitiveness of labour intensive industries.
C. reduced consumer choice in technology products.
D. upward pressure on wage price inflation

B. the reduced competitiveness of labour intensive industries. - Learning Module 2

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35. Portfolio X consists of blue chip shares and portfolio Y consists of unlisted shares. What type of risk is likely to be significantly higher for portfolio Y when compared to portfolio X?
A. Duration risk.
B. Shortfall risk.
C. Inflation risk. 
D. Liquidity risk.

D. Liquidity risk. - Learning Module 5

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In order to reduce the interest-rate risk of a bond portfolio, a fund manager would usually
A. increase the modified duration of the portfolio.
B. reduce the modified duration of the portfolio.
C. purchase longer-dated bonds.
D. sell shorter-dated bonds.

B. reduce the modified duration of the portfolio. - Learning Module 5

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37. A UK investor is looking to purchase international equities via an open-ended investment company. In respect of currency risk he should be aware that
A. a fund with a covered call strategy will reduce the currency risk.
B. a hedged share class will reduce the currency risk.
C. purchasing share classes issued in local currencies will automatically remove the currency risk. 
D. purchasing a UK domiciled fund containing international equities will automatically remove the currency risk.

B. a hedged share class will reduce the currency risk. - Learning Module 5

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38. Angela has £8,000 and borrows a further £2,000 to purchase some shares. The purchase price of the shares was £2.00 and she subsequently sold them for £1.80 each. Allowing for repayment of the borrowing, what percentage of her original capital would be lost?
A. 10%
B. 12.5% 
C. 17.5% 
D. 20%

B. 12.5% - Learning Module 5

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Jebran and Irmak are both higher-rate taxpayers, who have fully utilised their Capital Gains Tax exemption in the tax year 2021/2022, have invested in offshore funds. They have realised gains as follows
Investor Fund Gain
Jebran Reporting £10,000
Irmak Non-reporting £10,000

If no allowances are available to them, what will their respective tax liabilities be?
A. Jebran will pay £1,200 more than Irmak.
B. Jebran will pay £2,000 more than Irmak.
C. Irmak will pay £1,200 more than Jebran.
D. Irmak will pay £2,000 more than Jebran.

D. - Learning Module 6

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45. Janet and Graham have made gains of £18,000 and £26,000 respectively in their unit trust holdings. Neither has made any other gains or losses in the tax year 2021/2022. If Janet is a higher-rate taxpayer and Graham is a basic-rate taxpayer, what is their combined Capital Gains Tax liability on these gains?
A. £1,940 
B. £2,510 
C. £3,310 
D. £3,880

B. £2,510 - Learning Module 6

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47. Gao and Sying are both UK higher-rate taxpayers. Gao makes a fully chargeable gain of £6,000 from his onshore bond and Sying makes a fully chargeable gain of £6,000 under her offshore bond. Their respective Income Tax liabilities will result in
A. Gao paying £1,200 more than Sying.
B. Gao paying £2,400 more than Sying. 
C. Sying paying £1,200 more than Gao. 
D. Sying paying £2,400 more than Gao

C. Sying paying £1,200 more than Gao. - Learning Module 6

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Mei-Xing, an additional-rate taxpayer, has invested in two new issue Enterprise Investment Schemes (EISs) as per the following table
EIS Date of investment Amount invested
X August 2020 £400,000
Y August 2021 £450,000
```
She should be aware that A. she may invest a maximum amount of up to £150,000 in the current tax year. B. EIS X will qualify for business property relief from September 2022. C. EIS Y will qualify for Income Tax relief of £202,500. D. she must hold both EISs for at least 5 years for any disposal to be exempt from Capital Gains Tax.
```

B. EIS X will qualify for business property relief from September 2022. - Learning Module 6

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David and Karen, both in their 50s, are higher-rate taxpayers. They wish to invest £250,000 for long term growth. What would be the main advantage of investing in an offshore investment bond?
A. Any death benefits will be free from Inheritance Tax.
B. Any withdrawals will be tax free.
C. They can control the timing of future personal taxation.
D. They will automatically pay basic-rate tax upon any surrender once they have retired.

C. They can control the timing of future personal taxation. - Learning Module 7

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An investment portfolio incorporating lifestyling would
A. exactly match the client’s attitude to risk.
B. increase its gilt exposure in the early years.
C. maintain a balanced exposure across asset classes throughout its life.
D. reduce its equity exposure in later years.

D. reduce its equity exposure in later years. - Learning Module 7

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When agreeing the benchmark for an investment portfolio with a client, it is important that the chosen benchmark is
A. always in line with the client’s long term investment objectives.
B. always positively correlated with the portfolio’s underlying assets.
C. always the lowest risk for the available choices.
D. derived from the efficient frontier curve.

A. always in line with the client’s long term investment objectives. - Learning Module 7

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69. Pauline has agreed that her investment portfolio should be constructed in accordance with the MSCI PIMFA Private Investor Growth Index. Her discretionary fund manager has decided that owing to current economic conditions, he will deviate frequently in the short-term from the prescribed asset allocation model. His decision is an example of
A. optimisation.
B. partial replication.
C. strategic asset allocation. 
D. tactical asset allocation.

D. tactical asset allocation. - Learning Module 8

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Multiple Response

When comparing a property authorised investment fund (PAIF) with a property investment trust
A. only under the PAIF is the price of shares directly linked to the value of the underlying investments.
B. only the PAIF is permitted to borrow money to invest.
C. only under the investment trust can the share price move independently of the value of the underlying investments.
D. under the PAIF a non-taxpayer can reclaim the tax deducted from any property income payments.

A. only under the PAIF is the price of shares directly linked to the value of the underlying investments.
C. only under the investment trust can the share price move independently of the value of the underlying investments.
D. under the PAIF a non-taxpayer can reclaim the tax deducted from any property income payments.

Learning Module 1

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Multiple Response

Elaine, an experienced investor, has diversified her portfolio into listed property company shares. She should be aware that listed property company shares
A. offer greater diversification than direct property investment.
B. will not be eligible for a stocks and shares ISA investment.
C. will never fall in value.
D. are affected by the quality of the company management

A. offer greater diversification than direct property investment
D. are affected by the quality of the company management

Learning Module 1

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Multiple Response 76. Maarav has £90,000 in a building society deposit account and Pinar has £110,000 in a National Savings & Investments Direct Saver account. Both accounts offer the same rate of interest. When comparing the characteristics of the two accounts A. Pinar’s account has a higher level of capital protection in the event of default. B. Maarav’s account will always be subject to a penalty upon early withdrawal. C. Maarav’s and Pinar’s accounts will both pay interest on a gross basis. D. Pinar’s account will not have voting rights.

A. Pinar’s account has a higher level of capital protection in the event of default. C. Maarav’s and Pinar’s accounts will both pay interest on a gross basis. D. Pinar’s account will not have voting rights. Learning Module 1

Multiple Response 77. Sam is considering a short-term money market fund and a standard money market fund. In respect of the main differences between them, he should be aware that A. only the short-term fund has a weighted average maturity of no more than 60 days. B. only the standard money market fund has a weighted average life of no more than six months. C. both funds could hold commercial bills. D. both funds could hold certificates of deposit maturing in one month.

A. only the short-term fund has a weighted average maturity of no more than 60 days. C. both funds could hold commercial bills. D. both funds could hold certificates of deposit maturing in one month. Learning Module 1

Multiple Response 79. Shirley invests in a number of gilts and corporate bonds. When comparing these A. gilts are always less volatile than corporate bonds. B. corporate bonds are always classed as sub-investment grade. C. investors requiring ultra-long duration would favour gilts rather than corporate bonds. D. a requirement for a higher yield would favour corporate bonds over gilts.

B. corporate bonds are always classed as sub-investment grade. C. investors requiring ultra-long duration would favour gilts rather than corporate bonds. Learning Module 1

Multiple Response 81. When placing money in a bank account, an investor should be aware that A. there is no guarantee that real growth can be achieved. B. all accounts pay interest. C. the Financial Services Compensation Scheme applies to accounts held in the UK. D. term deposit accounts always pay a higher rate of interest than instant access accounts.

A. there is no guarantee that real growth can be achieved. C. the Financial Services Compensation Scheme applies to accounts held in the UK. Learning Module 1

Multiple Response 82. When considering the pricing characteristics of a conventional gilt A. the amount paid for the stock at the redemption date is always £100. B. a price of £104.50 is said to be below the par value. C. a purchaser of a gilt will usually pay a higher price than the seller will receive. D. a purchase of stock between coupon purchase dates will be transacted at the clean price.

A. the amount paid for the stock at the redemption date is always £100. C. a purchaser of a gilt will usually pay a higher price than the seller will receive. Learning Module 1

Multiple Response 86. Priya is considering a junior ISA (JISA) for her son Shaan, aged 14. She should be aware that A. she may transfer Shaan’s existing Child Trust Fund into a JISA. B. she may invest in both cash and stocks and shares components of a JISA. C. Shaan assumes responsibility for the account at age 16. D. the JISA allowance forms part of her stocks and shares ISA allowance.

A. she may transfer Shaan’s existing Child Trust Fund into a JISA. B. she may invest in both cash and stocks and shares components of a JISA. C. Shaan assumes responsibility for the account at age 16. Learning Module 6

Multiple Response 87. Frank, a non-taxpayer, has an investment bond. He is considering switching his existing equity and fixed interest funds into a property fund. He should be aware that A. the new fund is likely to have significant holdings in commercial property. B. the value of the property fund’s assets may be established by regular professional valuation. C. encashment of the property fund may sometimes be suspended for several months. D. he can reclaim the tax on income and gains deducted internally with the fund.

A. the new fund is likely to have significant holdings in commercial property. B. the value of the property fund’s assets may be established by regular professional valuation. C. encashment of the property fund may sometimes be suspended for several months. Learning Module 6

Multiple Response 88. A retail client is considering investing in hedge funds. He should be aware that A. higher charges are likely to apply than to traditional investment funds. B. a wide range of investment methods may be employed. C. liquidity risk is not an issue. D. derivatives may be used for more than just efficient portfolio management.

A. higher charges are likely to apply than to traditional investment funds. B. a wide range of investment methods may be employed. D. derivatives may be used for more than just efficient portfolio management. Learning Module 6

Multiple Response 89. Sanyu, a higher-rate taxpayer, has invested in a Real Estate Investment Trust (REIT). In respect of the income payments from the REIT he should be aware that A. he will not be subject to further taxation on any property income distribution he receives. B. he may offset any dividend payments against his dividend allowance. C. if held within a stocks and shares ISA, Sanyu will be able to receive the property income distribution on a gross basis. D. the dividend income will be paid net of 20% withholding tax.

B. he may offset any dividend payments against his dividend allowance. C. if held within a stocks and shares ISA, Sanyu will be able to receive the property income distribution on a gross basis. Learning Module 6

Multiple Response 90. David is considering the purchase of an Exchange Traded Note (ETN) or an index tracking open-ended investment company (OEIC) as a way of investing in the FTSE All-Share Index. In comparing them, he should be aware that A. the funds may use different methods to generate returns from the same index. B. ETNs usually carry counterparty risk. C. only the OEIC can be held in a stocks and shares ISA. D. both can be traded on a real time basis.

A. the funds may use different methods to generate returns from the same index. B. ETNs usually carry counterparty risk. Learning Module 6

Multiple Response 94. An independent financial adviser firm offers both advisory and discretionary management services. When comparing these A. only the advisory service requires a client’s approval before making a purchase. B. the advisory service will always have a lower level of adviser charge. C. the discretionary service will always include a wider range of investments. D. both services must act in accordance with the client’s agreed investment objectives and level of risk.

A. only the advisory service requires a client’s approval before making a purchase. D. both services must act in accordance with the client’s agreed investment objectives and level of risk. Learning Module 9

Multiple Response 98. When using alpha in order to assess and evaluate portfolio performance, a financial adviser should be aware that A. alpha can be a measure of a fund manager’s stock picking skills. B. alpha is the output derived from the Capital Asset Pricing Model (CAPM) equation. C. alpha cannot be used where the investment is a fund of funds. D. a positive alpha indicates that the portfolio is likely to have outperformed the market return.

A. alpha can be a measure of a fund manager’s stock picking skills. D. a positive alpha indicates that the portfolio is likely to have outperformed the market return. Learning Module 9

``` 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. £1,150 B. £1,410 C. £2,350 D. £7,350 ```

A. £1,150 - Learning Module 1

6. A retail client has invested in two money market funds as per the following table Fund type Amount Short-term £10,000 Standard. £15,000 In respect of these investments she should be aware that A. Atleast £12,500 of the standard fund must be held in assets with an average maturity of more than twelve months. B. A maximum of £25,000 of her capital may be held in assets with an average life of no more than twelve months. C. The minimum average maturity for the standard fund is 90 days. D. Within the short-term fund, £10,000 must be held in assets with an average maturity of no more than 60 days.

D. Within the short-term fund, £10,000 must be held in assets with an average maturity of no more than 60 days. - Learning Module 1

``` 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. £228,000 B. £285,000 C. £288,000 D. £360,000 ```

B. £285,000 - Learning Module 1 2,400,000 - 500,000 X 0.15% dwelling

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.

C. the net asset value of the investment trust may be more than £10,000. - Learning Module 1

``` 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 ```

C. 2.14 - Learning Module 1

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.

C. dirty price assumes that the buyer receives the accumulated interest. - Learning Module 1

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.

D. the shares will be exempt from Inheritance Tax after two full years of holding. - Learning module 1

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.

D. a fixed charge has a higher priority than a floating charge for payment. -Learning Module 1

16. Elizabeth is purchasing existing gilts on a direct basis and Harvey is purchasing gilts via a collective fund. In respect of the transaction charges, what will they pay? A. Elizabeth is likely to pay a higher price than the quoted mid-market price. B. Elizabeth will pay a dilution levy if the mid-market price is rising at the point of purchase. C. Harvey will pay dealing commission to an inter dealer broker. D. Harvey will pay Stamp Duty Reserve Tax on the purchase.

A. Elizabeth is likely to pay a higher price than the quoted mid-market price. - Learning Module 1

3.Fixed interest investments regarded as the least volatile are those with a: A. long period to maturity and a high coupon B. short period to maturity and a high coupon C long period to maturity and a low coupon D. short period to maturity and a low coupon

B. short period to maturity and a high coupon

4. Which of the following is a result of the ageing UK population? A. Declining proportion of wealth spent on manufactured goods B.Lower average wealth holdings due to increased longevity C. Demand for services diminishes as people become richer D. Falling GDP within the banking and insurance sectors

A. Declining proportion of wealth spent on manufactured goods

10. Priti is investing in a Seed Enterprise Investment Scheme. After how long of holding the investment will she receive 100% relief from inheritance tax? A. 1 year B. 18 months C. 2 years D. 3 years

C. 2 years

12. What effect did the financial crisis have on optimised portfolios created under Modern Portfolio Theory? A.Portfolios did not deliver the expected diversification benefit as the rules of correlation were not maintained B.Optimised portfolios created under Modern Portfolio Theory fared better than those created under the Pragmatist approach C. It established that Modern Portfolio Theory is acceptable only under 'normal conditions' D. It increased the attention paid to assessing volatility in the overall level of risk within a portfolio

A.Portfolios did not deliver the expected diversification benefit as the rules of correlation were not maintained

Multiple Response 16. Which features would you expect to find with a floating rate note? Tick all that apply. A.Coupons are paid monthly B.Changes in interest rates affect the market price as per other fixed interest stock C. The price is likely to remain close to its nominal value D. The interest rate is linked to a money market rate

C & D Question 16 A floating rate note (FRN) is a security issued by a company that offers a variable interest rate linked to a money market rate (e.gr LIBOR). As interest rates change, so the interest rate on the FRN may change; hence, the price is more likely to stay close to its nominal value. The interest rate is expressed in basis points e.g. 100 basis points (1%) above LIBOR. Interest is usually paid half-yearly or quarterly (not monthly).

Multiple response 17. Ben owns ordinary shares and preference shares in the same company. In which of the following ways do these types of share differ? Tick all that apply. A. Status ranking in the event of liquidation B. Yields C. Entitlement to dividend payments D. Frequency of dividend payments

A & B & C Question 17 Preference share dividends are usually paid at a fixed rate and take priority over ordinary share dividends, which are dependent on the profits left after tax and after preference shareholder dividends have been paid. Preference shares generally have no voting rights like ordinary shares, but in the event of liquidation, preference shares rank above ordinary shares. Both types of shares usually pay dividends half yearly.

``` 18. Which indices are aggregated into the FTSE-All Share Index? Tick all that apply. A. FTSE AIM index series B. FTSÈ 100 C. FTSE TMT D. FTSE 250 ```

B & D Question 18 The FTSE-All Share Index comprises the FTSE 100, FTSE 250 and the FTSE Small Cap.

Multiple Response 19. What are the main conditions that need to be met in order for a Venture Capital Trust (CT) to be approved by HMRC? Tick all that apply. A. Its income must be wholly or mainly derived from shares or securities. B.At least 70%of qualifying holdings must be in ordinary, non-preference shares C. All of the money raised must be employed within 1 year D. No more than 10% must be invested in any single company or group

A & B Answers a), b) and c) are all conditions that need to be met for a VCT to gain approval byHMRC. Another condition is that no more than 15% (not 10%) of the total investmentmust be invested in any single company or group.

Question 1 out of 25: Which of these is TRUE for a company to be admitted to the Alternative Investment Market (AIM)? a. The company must have assets of at least £1m before joining b. At least 20% of shares to be in public hands c. The prospectus must warn of the nature of the AIM d. Minimum trading record of at least 1 year

c. The prospectus must warn of the nature of the AIM

Multiple Response Question 4 out of 25: The yield curve for gilts is currently flat… this could indicate: a. Expectations are for relatively consistent interest rates b. Yields on both long and short dated gilts are broadly the same c. Exchange rates have recently turned against sterling, resulting in a devaluation of the pound d. Equities are currently seen as a better option for income needs

a & b

Question 9 out of 25: Ideally, how should Price / Earnings ratios be compared? a. On a prospective basis, using similar accounting procedures b. On a prospective basis, with varying accounting periods c. On a historic basis, using similar accounting periods d. On a historic basis, using similar accounting procedures

Question 11 out of 25: Which of the following statements in respect of the Lifetime ISA is TRUE? A. Withdrawals other than for house purchase can only be made after the age of 60 B. Both the personal contribution and the government bonus count toward the annual ISA allowance C. Only a cash version is available D.A lifetime ISA must be opened before you reach the age of 40

D.A lifetime ISA must be opened before you reach the age of 40

Question 12 out of 25: Multiple Response Question: In relation to Stamp Duty and Stamp Duty Reserve Tax, which of the following statements is correct? A. Stamp Duty is rounded to the nearest £1 B. Stamp Duty Reserve Tax is charged to the nearest penny C. AIM shares are exempt from Stamp Duty and Stamp Duty Reserve Tax D. Stamp Duty Reserve Tax is charged on OEICs but not Investment Trusts

B. Stamp Duty Reserve Tax is charged to the nearest penny | C. AIM shares are exempt from Stamp Duty and Stamp Duty Reserve Tax

Question 14 out of 25: Multiple Response Question: In relation to futures, which of the following statements is true? A. Only the buyer of the future has to deposit the initial margin with the middleman B. The buyer of a future is said to have the ‘long position’ C. The further payments made in addition to the initial margin are known as a ‘variation margin’ D. Futures always require the physical delivery of the asset

B. The buyer of a future is said to have the ‘long position’ | C. The further payments made in addition to the initial margin are known as a ‘variation margin’

``` Question 15 out of 25: How much can Pietr invest in SEIS in each tax year? A. £1m B. £100,000 C. £200,000 D. £300,000 ```

D. £300,000

Question 16 out of 25: A structured product is offering a set income level and capital protection based on FTSE 100. It also has a 'barrier' - what does this mean? a. If the FTSE 100 falls to a prescribed limit, returns are reduced b. If the FTSE 100 grows to a prescribed limit, returns are limited c. There will be a limit on the capital protected d. There will be a limit on the income return

a. If the FTSE 100 falls to a prescribed limit, returns are reduced

Question 17 out of 25: Multiple Response Question: Inflation risk is most likely to impact on which of the following investments: a. National Savings Index Linked Certificates b. Venture Capital Trusts c. National Savings Ordinary Account d. Treasury bills

c. National Savings Ordinary Account | d. Treasury bills

Multiple Response Question 18 out of 25: Peter and Lois, a married couple, are considering investing Lifetime ISAs, they should be aware that: a. Either one of them may subscribe for a Lifetime ISA but they may only have one between them b. The ISA funds, including bonus, may be withdrawn tax free at any time c. The maximum annual bonus is £1000 d. The maximum annual contribution is £4000

c. The maximum annual bonus is £1000 | d. The maximum annual contribution is £4000

``` Question 20 out of 25: What is the name for the measure of money supply that comprises notes and coins in circulation, instant access and time deposits of UK residents with UK banks and building societies? a. M0 b.M3 c. M4 d. M1 ```

c. M4

Question 22 out of 25: What is the hurdle rate in respect of an investment trust? a. The growth needed to cover charges b. The growth required to ensure that the fund returns at least the minimum specified return in addition to the return of capital on all asset classes c. The growth required to ensure that the assets of the investment trust are sufficient to repay all asset classes d. The growth needed to cover charges

c. The growth required to ensure that the assets of the investment trust are sufficient to repay all asset classes

``` Question 2 out of 25: When interest rates in the UK are changed, how long on average do they take to have their maximum effect on inflation? a. 0 - 6 months b. 18 - 24 months c. 12 - 18 months d. 6 - 12 months ```

b. 18 - 24 months

Question 3 out of 25: What does fiscal policy describe? a.The short-term effect on the economy of altering levels of government spending and interest rates b.The short-term effect on the economy of altering levels of government spending and taxation c.The economic impact of changes in the money supply and taxation d.The economic impact of changes in the money supply and interest rates

b.The short-term effect on the economy of altering levels of government spending and taxation

``` Question 4 out of 25: Which of the following are forms of fixed interest securities? a. SCARPs b. Floating Rate Notes c. Treasury Bills d. Debentures ```

d. Debentures

Question 6 out of 25: Which of these is NOT one of the key uses of bonds? a. Unpredictable short-term income b. Speculative profits c.Tax-free capital gains d. Income matched against long term fixed liabilities

a. Unpredictable short-term income

Question 7 out of 25: Which of the following is NOT a usual effect of the Bank of England easing monetary policy? a. Longer-term interest rates should fall b. People will be more willing to borrow c. Asset prices, from bonds and equities to housing, should rise d. People dependent on interest income will be better off

d. People dependent on interest income will be better off

Multiple Response Question: Question 11 out of 25: In relation to options, which of the following statements is true? a. Options may be traded after issue b. All options end in the delivery of the asset c. Both sides pay a commission d. A put option allows the buyer to acquire the asset at the agreed price

a. Options may be traded after issue | c. Both sides pay a commission

``` Question 14 out of 25: What measure is often used to compare the financial strength of with profits funds? a. Growth income ratio b. Net Earnings Ratio c. Free Asset Ratio d. Price Earnings Ratio ```

c. Free Asset Ratio

Question 17 out of 25: If a share in an investment trust experiences a narrowing discount, returns will: a. It is not possible to say b. Look more favourable c. Be more favourable for larger funds and less favourable for smaller funds d. Look less favourable

b. Look more favourable

Question 19 out of 25: Which of these is NOT a characteristic of a structured product? a. Either a guarantee of capital or income or both b. Fixed-term investments c. Secondary market for private investors to trade the securities d. Minimum or maximum returns are pre-specified

c. Secondary market for private investors to trade the securities

``` Question 22 out of 25: Kevin has an offshore non-qualifying investment bond. He is a higher rate taxpayer and the gain is £10,000. How much tax is due assuming the gain was made over 4 years and he spent exactly one year resident outside the UK during this period? a. £2,000 b.£3,000 c. £1,000 d. Nil ```

b.£3,000

Multiple Response Question: Question 23 out of 25: As an asset, direct investment in residential ‘buy to let’ property: a. Generally achieves higher yields for larger properties b. Is generally subject to higher liquidity risk than investment in exchange traded securities c. Has generally underperformed both equities and fixed interest over the longer term d. Is subject to higher taxation than investment in commercial property funds

b. Is generally subject to higher liquidity risk than investment in exchange traded securities d. Is subject to higher taxation than investment in commercial property funds

Question 25 out of 25: In the context of an investment bond, why might the product be segmented? a. To make the charging structure simpler b. To help with investment allocation c. To make the product seem more complex d. For possible tax benefits

d. For possible tax benefits

``` George has £100,000 in a deposit account with Barclays in Jersey and £90,000 in a deposit account with Lloyds in Manchester. What maximum amount of these deposits, if any, is protected under the Financial Services Compensation Scheme? Select one: a. £90,000. b. £190,000. c. £170,000. d. £85,000. ```

d. £85,000.

Guaranteed Growth Bonds from National Savings and Investments [NS&I]: Select one: a. are offered for a maximum period of three years. b. have a taxable interest which cannot be offset against the investor's personal savings allowance. c. are available to anyone over the age of 18. d. have an interest rate which is fixed, and is dependent upon the term selected.

d. have an interest rate which is fixed, and is dependent upon the term selected.

Gautum has invested in Treasury bills. Which of these characteristics of his investment is INCORRECT? Select one: a. He could have obtained them at a routine weekly auction. b. He must have purchased a minimum of £500,000 nominal of bills. c. The interest he will receive is linked to RPI three months prior to issue. d. Their prevailing rate of return is often used as the benchmark 'risk-free rate of return'.

c. The interest he will receive is linked to RPI three months prior to issue.

``` A company's credit rating has been marked down unexpectedly. The yield from bonds previously issued by them will: Select one: a. rise. b. fall heavily. c. fall gradually. d. be unaffected. ```

a. rise.

Mary is about to become an ordinary shareholder in her employer's company which, as a part-owner of the company, will give her certain rights, APART from the right to: Select one: a. a fixed rate of dividend half yearly. b. one vote for each share in the company she owns. c. share the company's residual value on liquidation, after all debts and rights of shareholders with a prior claim. d. vote at general meetings of the company and to elect the directors.

a. a fixed rate of dividend half yearly.

Caleb is considering an investment into a listed private equity investment company. Which of these statements is INCORRECT? Select one: a. They are closed-ended but not eligible for inclusion in an ISA. b. They are closed-ended and traded on the London Stock Exchange. c. They can invest directly in unlisted companies and in funds that invest in unlisted companies. d. They are a form of investment trust that is eligible for inclusion in an ISA.

a. They are closed-ended but not eligible for inclusion in an ISA.

``` If Derek is investing in a tracker fund which is not weighted according to market capitalisation, he is tracking the: Select one: a. FTSE 100. b. FTSE AIM 100. c. Nikkei 225. d. Dax 30. ```

c. Nikkei 225.

Edith has just purchased her first buy-to-let property. She is unsure as to the nature of the shorthold lease she should let the property under. You inform her that: Select one: a. there is no minimum period, but she should aim for as long a rental agreement as possible to enhance the property value. b. the minimum period is six months, but she should aim for as long a rental agreement as possible to enhance the property value. c. there is no minimum period but she should avoid long rental agreements so as not to depress the property value. d. the minimum period is six months but she should avoid long rental agreements so as not to depress the property value.

c. there is no minimum period but she should avoid long rental agreements so as not to depress the property value.

How much stamp duty land tax will be payable on the purchase of a residential property for £300,000, if the purchaser is NOT a first-time buyer? Select one: a. £5,500. b. £5,000. c. £15,000. d. £10,000.

b. £5,000.

Joyce has let one of the rooms in her house to Terry. Terry has sub-let the room to a friend, Colin. What is the maximum amount of tax-exempt income they can receive? Select one: a. £3,750 for Joyce and £3,750 for Terry. b. £4,250 for Joyce and £0 for Terry. c. £2,125 for Joyce and £2,125 for Terry. d. £7,500 for Joyce and £0 for Terry.

a. £3,750 for Joyce and £3,750 for Terry.

Juan is considering investing in Spanish fine wine as a long-term investment. What would be a valid reason for avoiding this choice of investment? Select one: a. He does not have enough room in his own cellar to store it. b. He wishes to use some of the investment for personal use. c. He requires a regular income from his investments. d. Spanish wine has been a historic poor performer.

c. He requires a regular income from his investments.

In the immediate aftermath of the 2011 tsunami in Japan, the yen surged almost 5% against the US dollar. What action was then taken in the currency markets and by whom? Select one: a. The Bank of Japan acted alone and sold yen to deflate the economy. b. The Bank of Japan and other central banks bought yen to avoid further deflationary pressures. c. The Bank of Japan and other central banks sold yen to avoid further deflationary pressures. d. The Bank of Japan acted alone by increasing interest rates.

c. The Bank of Japan and other central banks sold yen to avoid further deflationary pressures.

A Japanese company is looking to establish a new factory in the UK. Assessing this decision in isolation, what would be the likely change in the exchange rate between UK Sterling and Japanese Yen? Select one: a. Sterling would appreciate and Yen would weaken. b. Sterling would weaken and Yen would appreciate. c. Both Sterling and Yen would appreciate at the same rate. d. Both Sterling and Yen would weaken at the same rate.

a. Sterling would appreciate and Yen would weaken.

Bert is using the Fama & French model to try to estimate the required return on his portfolio. In addition to the company's beta value, the model takes account of: Select one: a. changes in gross domestic profit and inflation. b. the proportion of high value stocks held. c. company size and value. d. changes in interest rates.

c. company size and value. CorrectCorrect, chapter reference 4C

``` According to the efficient market hypothesis, the most efficient market is the: Select one: a. large capital stocks market. b. small capital stocks market. c. government bond market. d. corporate bond market. ```

c. government bond market.

Identified as an element of behavioural finance, investors guilty of 'fear of regret' will tend to: Select one: a. not invest in asset-backed securities. b. hold on to a falling stock for too long. c. favour tracker funds. d. sell a falling stock too quickly.

b. hold on to a falling stock for too long.

In the 2008 banking crisis, the risk of 'credit spread' was demonstrated by the: Select one: a. public being less able to obtain cheap finance. b. growing difference in the yields between corporate bonds and gilts. c. narrowing difference in the yields between corporate bonds and gilts. d. government being less able to obtain cheap finance.

b. growing difference in the yields between corporate bonds and gilts.

``` A fund consists of 100% UK gilts and is valued at £500 million. To stay within the diversification rules, a single stock within the portfolio could be worth as much as: Select one: a. £100 million. b. £150 million. c. £25 million. d. £50 million. ```

b. £150 million.

retail client has asked her financial adviser why the discount on her investment trust has increased recently. The adviser should explain that the share price is: Select one: a. below the net asset value per share which reflects recent positive comments about the trust from several prominent stock brokers. b. above the net asset value per share which reflects the short-term poor performance of the trust. c. below the net asset value per share which reflects a recent fall in market demand for the trust. d. above the net asset value per share which reflects a recent fall in market demand for the trust.

c. below the net asset value per share which reflects a recent fall in market demand for the trust.

``` 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. £1,200. b. £1,080. c. £600. d. £540. ```

b. £1,080.

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 9 years with an original term of 12 years. b. after 6 years with an original term of 8 years. c. after 5 years. d. after 7 years with an original term of 11 years.

a. after 9 years with an original term of 12 years.

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. the subscription limits. c. that only CTFs have a stakeholder option. d. the underlying investments available.

c. that only CTFs have a stakeholder option.

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

a. American-style put option.

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

d. defer any decisions until after the strike date.

``` Barton Investments' hedge fund always adopts a market-neutral strategy. This fund is referred to as a[n]: Select one: a. relative value fund. b. event-driven fund. c. tactical trading fund. d. long/short fund. ```

a. relative value fund.

Alan, an IFA, is meeting a prospective new client, Jean. The first thing that Allen should do is: Select one: a. provide Jean with information about the scope of the services that are being offered. b. establish Jean's attitude to investment risk. c. ascertain Jean's goals and objectives. d. gather detailed data about Jean's personal and financial circumstances.

a. provide Jean with information about the scope of the services that are being offered.

Eric is an investment adviser who is considering how to meet his client's investment objectives. Which of these facts would NOT be considered a constraint to his advice? Select one: a. His client would like him to include socially responsible investments. b. His client has a cautious attitude to risk. c. His client has a four year investment time horizon. d. His client is a higher-rate taxpayer.

b. His client has a cautious attitude to risk.

``` Jeanette uses mathematical analysis and techniques with the aim of obtaining the maximum return consistent with a given level of volatility on her portfolio. Her approach would be categorised as being: Select one: a. stochastic. b. strategic. c. theoretical. d. pragmatic. ```

c. theoretical.

Elliot's approach to fund management is based on him finding companies with what he believes are long-term sustainable advantages over their competitors. This management style can be categorised as: Select one: a. seeking value. b. practicing contrarianism. c. finding growth at a reasonable price [GAARP]. d. following the momentum.

c. finding growth at a reasonable price [GAARP].

``` A structured product offers a return of 115% of the FTSE 100 Index over a period of five years, or full return of capital if the index is lower at redemption. What type of protection is this known as? Select one: a. Firm. b. Hard. c. Soft. d. Positive. ```

b. Hard.

``` Ken's adviser has recommended he invests in a product which limits the capital risk of equity investment, in return for a lock-in period of five years. The product is most likely to be a[n]: Select one: a. distribution bond. b. hedge fund. c. structured product. d. exchange-traded fund. ```

c. structured product.

Onshore investment bonds are likely to be relatively more attractive to: Select one: a. higher-rate taxpayers who have a requirement for regular income. b. higher-rate taxpayers who have a requirement for capital growth. c. basic-rate taxpayers who have a requirement for capital growth. d. basic-rate taxpayers who have a requirement for regular income.

a. higher-rate taxpayers who have a requirement for regular income.

Asset managers use performance attribution because it: Select one: a. demonstrates the out-performance of the fund over comparable funds. b. differentiates between the returns that result from asset allocation verses sector or stock selection decisions. c. takes into account the risk taken to achieve the fund performance. d. demonstrates the out-performance of the fund over the respective benchmark.

b. differentiates between the returns that result from asset allocation verses sector or stock selection decisions.

Multiple Response A company that is considering offering corporate bonds to raise capital should understand that: You must select ALL the correct options to gain the mark: a. bonds are often a company's cheapest method of borrowing money. b. the rate of interest will always be linked to a relevant money market rate. c. they would not be restricted as to the number of bonds they could offer. d. they may offer secured or unsecured bonds. e. a corporate bond is a financial instrument representing debt.

a. bonds are often a company's cheapest method of borrowing money. c. they would not be restricted as to the number of bonds they could offer. d. they may offer secured or unsecured bonds. e. a corporate bond is a financial instrument representing debt.

Multiple Response John, a basic-rate taxpayer, is looking to purchase a new 'medium' gilt. He will receive a: You must select ALL the correct options to gain the mark: a. repayment of capital after a fixed period. b. fixed redemption value. c. fixed rate of interest. d. payment on an annual basis.

a. repayment of capital after a fixed period. b. fixed redemption value. c. fixed rate of interest.

Multiple Response Josh purchased a conventional gilt with a remaining term of 17 years via the secondary market 3 years ago for above par. Josh should understand that: You must select ALL the correct options to gain the mark: a. the income will be variable. b. the gilt would be now classed as medium. c. he will make a capital loss if he holds the gilt to redemption. d. gilts are generally higher risk than corporate bonds.

b. the gilt would be now classed as medium. | c. he will make a capital loss if he holds the gilt to redemption.

Multiple Response Charlie is purchasing £15,000 worth of shares electronically. The potential costs involved with his purchase will include: You must select ALL the correct options to gain the mark: a. stamp duty. b. Panel on Takeovers and Mergers levy. c. commission, which is always paid as a percentage of the purchase price. d. stamp duty reserve tax. e. UK Listing Authority levy.

b. Panel on Takeovers and Mergers levy. | d. stamp duty reserve tax.

Multiple Response Neil is aware that some shares he owns are non-voting ordinary shares. This means that: You must select ALL the correct options to gain the mark: a. they have restricted voting rights. b. they carry a higher level of risk than standard ordinary shares. c. their market price will usually be higher than standard ordinary shares. d. they never have voting rights. e. they receive the same dividend as other types of ordinary shares.

a. they have restricted voting rights. b. they carry a higher level of risk than standard ordinary shares. e. they receive the same dividend as other types of ordinary shares.

Multiple Response Petra wishes to calculate the earnings per share on an asset she holds. She could do this by having knowledge of the: You must select ALL the correct options to gain the mark: a. profit per preference share and current share price. b. profit per share and the number of ordinary shares in issue. c. net asset value and dividend cover. d. price earnings ratio and current share price. e. dividend yield and current share price.

b. profit per share and the number of ordinary shares in issue. d. price earnings ratio and current share price.

Multiple Response Bertrand has a portfolio of shares invested in Germany, France and Hong Kong. Which indices could he use as benchmarks for the various parts of his portfolio? You must select ALL the correct options to gain the mark: a. CAC 40. b. Topix. c. Hang Seng. d. DAX 30. e. NASDAQ.

a. CAC 40. c. Hang Seng. d. DAX 30.

Multiple Response Lenny is considering investing directly into property alongside his existing share portfolio. What drawbacks of direct property investment would you bring to his attention? You must select ALL the correct options to gain the mark: a. Inflation risk. b. Void periods will reduce yields. c. Property management costs can reduce yields. d. Lack of liquidity. e. High costs associated with initial purchase.

b. Void periods will reduce yields. c. Property management costs can reduce yields. d. Lack of liquidity. e. High costs associated with initial purchase.

Multiple Response What factors are taken into account when calculating the net present value of rent payable under a lease for stamp duty land tax purposes? You must select ALL the correct options to gain the mark: a. Property value. b. Annual rent. c. Term of lease. d. Interest rates. e. Inflation.

b. Annual rent. c. Term of lease. e. Inflation.

Multiple Response Sean and Megan are letting out one of the rooms in their house under the rent-a-room scheme. To do so: You must select ALL the correct options to gain the mark: a. subject to their consent, the room may be sublet by the tenant. b. they can both claim the full tax-exempt amount of rent. c. the maximum exempt amount of rent will not exceed £4,250. d. they cannot include the charge for the laundry service they provide in the 'rental' amount. e. they must occupy the property at the same time as the tenant.

a. subject to their consent, the room may be sublet by the tenant. e. they must occupy the property at the same time as the tenant.

Multiple Response Spires Investment Trust has 22 million ordinary shares and 4 million outstanding warrants that give the holders the right to subscribe at £1 per share. If the trust’s assets are worth £24 million, this means that: You must select ALL the correct options to gain the mark: a. only the undiluted net asset value is expressed as a value per share. b. the diluted net asset value represents the true picture if all warrants were exercised. c. when warrants are exercised, the number of ordinary shares and the value of the trust increase proportionately. d. the undiluted net asset value is £1.09 [to 2 decimal points]. e. the diluted net asset value is £1.08 [to 2 decimal points].

b. the diluted net asset value represents the true picture if all warrants were exercised. d. the undiluted net asset value is £1.09 [to 2 decimal points]. e. the diluted net asset value is £1.08 [to 2 decimal points].

Multiple Response When considering an investment into a split capital investment trust, what factors should an investor take into account? You must select ALL the correct options to gain the mark: a. A negative hurdle rate, as this indicates a positive outlook. b. The redemption yield, as this measures the capital and income return on a particular share until wind-up. c. A negative hurdle rate, as this indicates a negative outlook. d. The asset cover, as this measures the company's ability to meet the liability to share classes with a pre-determined redemption price.

a. A negative hurdle rate, as this indicates a positive outlook. b. The redemption yield, as this measures the capital and income return on a particular share until wind-up. d. The asset cover, as this measures the company's ability to meet the liability to share classes with a pre-determined redemption price.

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

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

Multiple Response 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. Capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company. b. The EIS shares will qualify for 100% business relief if they are held for at least one year. c. He can invest up to a further £800,000 in EIS investments by carrying back the investment up to three years. d. A non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK income tax. e. 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.

a. Capital gains tax in respect of another gain can be deferred by reinvesting the gain into an EIS company. d. A non-UK resident is eligible to invest in an EIS, but can only claim relief against any liability to UK income tax. e. 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.

Multiple Response 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 2021/22 ISA allowances? You must select ALL the correct options to gain the mark: a. Three members of the family can pay into stocks and shares ISAs. b. All three children have the same ISA allowances. 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. Mr and Mrs Green can each pay a total of £20,000 into cash ISAs, and £20,000 into stocks and shares ISAs.

a. 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.

Multiple Response Raheed is an investment manager and he is recommending to a client that they re-balance their portfolio. This is justifiable where: You must select ALL the correct options to gain the mark: a. there has been a change to market conditions. b. there has been a change to the prevailing rate of income tax. c. the switch in holdings is made with a view to generating additional fees. d. the client wishes to make a small reduction in the levels of income taken from the portfolio. e. there has been a change in the real returns on assets held within the portfolio.

a. there has been a change to market conditions. | e. there has been a change in the real returns on assets held within the portfolio.

Multiple Response When comparing the money-weighted rate of return [MWR] and the time-weighted rate of return [TWR], the: You must select ALL the correct options to gain the mark: a. TWR is universally used for comparative purposes. b. TWR attempts to eliminate the distortions caused by the timing of new money. c. MWR is not influenced by the timing of cash flows. d. MWR is appropriate for evaluating and comparing different portfolios. e. MWR measures the overall return on capital invested over a specific period.

a. TWR is universally used for comparative purposes. b. TWR attempts to eliminate the distortions caused by the timing of new money. e. MWR measures the overall return on capital invested over a specific period.

Multiple Response A fund has a beta of 0.8 and a standard deviation of 9. The annual return on the market is 7% and the risk-free rate returns 2% per annum. The fund returned 6.5% in the past year. The: You must select ALL the correct options to gain the mark: a. fund is less volatile than the market. b. Sharpe ratio of the fund is higher than its alpha. c. fund returned a negative alpha. d. fund manager has, on a risk-adjusted basis, outperformed the market. e. alpha of the fund is lower than its beta.

a. fund is less volatile than the market. d. fund manager has, on a risk-adjusted basis, outperformed the market. e. alpha of the fund is lower than its beta.

Multiple Response Ronnie is using the declared 'alpha' to review the performance of his portfolio. He should be aware that: You must select ALL the correct options to gain the mark: a. a negative alpha indicates a positive return. b. it is the return explained by the capital asset pricing model. c. it is a measure of a fund manager's stock-picking skills. d. the alpha of a fund is independent of the fund's beta value. e. in some cases a negative alpha can result from the effect of fund management expenses.

c. it is a measure of a fund manager's stock-picking skills. e. in some cases a negative alpha can result from the effect of fund management expenses.

Multiple Response The information ratio is a useful measure of a portfolio's performance because it: You must select ALL the correct options to gain the mark: a. takes into account the relative concentration of the various asset classes. b. shows the consistency with which a manager beats a benchmark index. c. includes a factor for fund manager experience. d. measures returns over the risk-free rate. e. adjusts the performance measurement by a risk factor.

b. shows the consistency with which a manager beats a benchmark index. e. adjusts the performance measurement by a risk factor.

Multiple Response ``` The asset allocation for a benchmark fund includes 60% UK equities, 35% fixed interest and 5% cash. If the indices for these assets perform at 15%, 10% and 5% respectively: You must select ALL the correct options to gain the mark: a. replicating the benchmark fund asset allocation, and tracking the appropriate indices for each class of asset, would return 12.75%. b. the contribution of the cash to the overall return is 2.5%. c. the inclusion of overseas equities would increase the return of the benchmark fund. d. the model rate of return for equities is 4%. e. the model rate of return for equities is 9%. ```

a. replicating the benchmark fund asset allocation, and tracking the appropriate indices for each class of asset, would return 12.75%. e. the model rate of return for equities is 9%.

PQR Plc has issued commercial bills. This is most likely to help the company: Select one: a. increase their appeal in the equity market. b. fund their day-to-day cash flows. c. fund their long-term liabilities. d. receive inward investment from overseas.

b. fund their day-to-day cash flows.

``` A company has recently had its credit rating improved. As a result, the yield demanded by investors from the stock is likely to: Select one: a. increase. b. reduce. c. fluctuate. d. stay the same ```

b. reduce

Simone owns corporate bonds issued by Masters Ltd. In the event of the business being wound up, repayment of her unsecured bonds: Select one: a. is guaranteed, provided there are no secured creditors. b. is guaranteed, provided there are no preference shareholders. c. would rank alongside ordinary creditors of the company. d. would rank alongside ordinary shareholders of the company.

c. would rank alongside ordinary creditors of the company.

``` How much stamp duty, if any, would be payable on the purchase of £1,400 of UK-registered shares using a stock transfer form? Select one: a. £7. b. £5. c. £10. d. Nil. ```

c. £10. - Rounded to 10

``` Erica has a buy-to-let property. The purchase price was £200,000 and associated costs of purchase were £30,000. The rental income is £800 per month with a 15% management fee. The headline gross yield is: Select one: a. 4.08%. b. 3.55%. c. 4.17%. d. 4.8%. ```

a. 4.08%.

Andi is considering renting out a room in her house. She anticipates rental income of £150 per week and expects to incur £300 a year in allowable expenses. She should be aware that: Select one: a. there would be a taxable amount of rent under the rent-a-room scheme. b. the amount of tax-exempt rent would be greater if the room was sublet. c. charges for any related goods and services provided are not tax-exempt. d. there would be no tax to pay under the rent-a-room scheme.

a. there would be a taxable amount of rent under the rent-a-room scheme.

``` When an economy is booming, this is most likely to result in a: Select one: a. rise in unemployment. b. fall in the price of equities. c. rise in property values. d. fall in interest rates. ```

c. rise in property values.

A country has witnessed a rapid growth in the amount of money circulating in the economy, as measured by M4. This is a sign that: Select one: a. there are fewer coins in circulation. b. inflationary pressures are building up. c. the demand for loans is falling. d. there are fewer notes in circulation.

b. inflationary pressures are building up.

Candice owns fixed-interest securities. If interest rates were to rise, their: Select one: a. value will decrease and their yield will increase. b. yield and their value will both decrease. c. yield and their value will both increase. d. value will increase and their yield will decrease.

a. value will decrease and their yield will increase.

According to the Fama and French multi-factor model, it is UNLIKELY that: Select one: a. small cap stocks will outperform large cap stocks. b. value stocks will outperform growth stocks. c. the securities they favour will be more volatile than the market. d. large cap stocks will outperform small cap stocks.

d. large cap stocks will outperform small cap stocks.

``` According to the efficient market hypothesis [EMH], the LEAST efficient of these markets is: Select one: a. mid-listed stocks. b. government bonds. c. large-listed stocks. d. venture capital. ```

d. venture capital.

Which of these investors would usually be the hardest hit by inflation? Select one: a. Gary, who owns a number of conventional gilts. b. Sally, who relies on her UK company shares. c. Anna, who likes to invest in works of art. d. Peter, who frequently invests in property.

a. Gary, who owns a number of conventional gilts.

``` When there is market uncertainty, corporate bonds may underperform bonds issued by governments. This 'flight to quality' is known as credit: Select one: a. counterparty risk. b. event risk. c. downgrade risk. d. spread risk. ```

d. spread risk.

``` Anna works for a small open ended investment company [OEIC]. She is responsible for the preparation of accounts as well as ensuring the OEIC complies with its investor protection requirements. This means that Anna must be: Select one: a. the authorised corporate director. b. one of the trustees. c. the fund's independent depository. d. the fund's internal depository. ```

a. the authorised corporate director.

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. Neither of them can increase their premiums without losing their tax-free status. b. Stefan can increase by £50 and Anita can increase by £10. c. Stefan can increase by £70 and Anita can increase by £5. d. Stefan is already paying the maximum but Anita can increase by £5.

c. Stefan can increase by £70 and Anita can increase by £5.

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. Steven will have to declare the difference between the surrender value and sale value on his tax return. b. 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. c. if the policy had run for more than three-quarters of its term when it was sold, it becomes non-qualifying. d. Beryl may have a liability to capital gains tax when the policy matures, or on prior disposal.

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

An important difference between exchange-traded funds [ETFs] and exchange-traded notes [ETNs] is that only: Select one: a. ETFs track an index. b. ETFs are sensitive to changes in interest rates. c. ETNs give access to specialist market niches. d. ETFs hold a portfolio of actual investments.

d. ETFs hold a portfolio of actual investments.

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. two elements, both of which will be paid gross with no further tax to pay. d. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted.

d. one element paid net of 20% tax that he can reclaim and one element paid with no tax deducted.

``` PS 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. £0. b. £1,000,000. c. £200,000. d. £1,200,000. ```

d. £1,200,000.

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

b. European-style call option.

Doug is interested in investing in a fixed-interest securities fund that could provide the highest reward. The most appropriate recommendation would be a[n]: Select one: a. UK Gilt fund. b. investment grade corporate bond fund. c. emerging market bond fund. d. global government bond fund.

c. emerging market bond fund.

``` Asha, 42, is risk-adverse and has only deposit-based savings. Bruce, 66, recently retired and lives off his investment income. Chloe, 26, wants to buy a house within the next two years. Dylan, 35, is a high-earner with surplus monthly income. Which client's objective is most likely to be capital appreciation? Select one: a. Chloe. b. Dylan. c. Asha. d. Bruce. ```

b. Dylan.

``` If Jacob's investment portfolio consists of 65% equities, 15% property, 15% bonds and 5% cash his risk profile is most likely to be: Select one: a. balanced. b. income and growth. c. growth. d. adventurous. ```

c. growth.

With an investment portfolio, a withdrawal rate of 4% means that this level of income can be taken: Select one: a. adjusted for inflation, and the value of the portfolio should last around 30 years. b. adjusted for inflation, whilst maintaining the value of the portfolio. c. whilst maintaining the value of the portfolio. d. and the value of the portfolio should last around 20 years

a. adjusted for inflation, and the value of the portfolio should last around 30 years.

How are stocks selected when using the bottom-up method of investment management? Select one: a. To achieve diversification by both geography and sector. b. To replicate the chosen index. c. Purely on their individual merits. d. Solely on the basis of the value they offer.

c. Purely on their individual merits.

``` A structured product offers a return of 110% of the FTSE 100 index over a period of four years with full return of capital, unless the index falls by 50% or more. What type of protection is this known as? Select one: a. Soft. b. Firm. c. Hard. d. Positive. ```

a. Soft.

Multiple Response When comparing the different types of money market instruments: You must select ALL the correct options to gain the mark: a. Treasury bills are often issued to finance the long-term cash needs of the government. b. banks and building societies can raise funds by issuing certificates of deposit. c. commercial bills are short-term negotiable debt that carry a fixed rate of interest. d. commercial bills are issued at a discount to their maturity value.

b. banks and building societies can raise funds by issuing certificates of deposit. d. commercial bills are issued at a discount to their maturity value.

Multiple Response How do investments in private equity funds and private equity investment companies differ? You must select ALL the correct options to gain the mark: a. Investment in private equity involves investing in high growth, unquoted companies. b. Listed private equity investment company shares cannot be held within an ISA. c. Most UK private equity funds seek to raise money for investment from institutional investors. d. Private equity funds tend to invest in companies for between three and seven years.

a. Investment in private equity involves investing in high growth, unquoted companies. c. Most UK private equity funds seek to raise money for investment from institutional investors. d. Private equity funds tend to invest in companies for between three and seven years.

Multiple Response When looking at a company's dividend cover and what it represents: You must select ALL the correct options to gain the mark: a. a high dividend cover implies that the company is paying out most of its profits to shareholders. b. the higher the dividend cover, the less likely it is that the company will be able to pay dividends in future if profits fall. c. dividend cover of less than 1 indicates that dividends have been paid out of reserves. d. it is an indication of the riskiness of the investment. e. it measures how many times the dividend could be paid out of current earnings.

c. dividend cover of less than 1 indicates that dividends have been paid out of reserves. d. it is an indication of the riskiness of the investment. e. it measures how many times the dividend could be paid out of current earnings.

Multiple Response A UK listed company ranked 300th by market capitalisation would be part of which FTSE indices? You must select ALL the correct options to gain the mark: a. Fledgling. b. All-Share. c. 250 d. 350. e. SmallCap.

b. All-Share. c. 250 d. 350.

Multiple Response Akio has investments in Japanese companies. What would be the best indices to measure their performance against? You must select ALL the correct options to gain the mark: a. Hang Seng. b. Topix. c. NASDAQ. d. Nikkei 225. e. DAX 30.

b. Topix. | d. Nikkei 225.

Multiple Response Paula is thinking of investing into a property based OEIC rather than buying a direct commercial property. The main advantages to this approach would include: You must select ALL the correct options to gain the mark: a. increased liquidity. b. reduced diversification. c. reduced costs associated with management. d. lower levels of taxation.

a. increased liquidity. | c. reduced costs associated with management.

Multiple Response Victoria is considering letting a room in her main residence. What issues should she be aware of regarding 'rent-a-room' relief? You must select ALL the correct options to gain the mark: a. She must occupy the property at the same time as her tenant. b. The rent taken into account is the payment for the accommodation plus any payment for related goods and services. c. If she receives gross rent of £8,000 in a year, she must claim relief and will have a tax bill. d. The tenant may only occupy one room. e. There is only one exempt amount per residence.

a. She must occupy the property at the same time as her tenant. b. The rent taken into account is the payment for the accommodation plus any payment for related goods and services. e. There is only one exempt amount per residence.

Multiple Response Cerys receives distributions from a unit trust that is invested in a UK gilt fund, which means that: You must select ALL the correct options to gain the mark: a. the distributions are paid gross. b. if Cerys is a higher-rate taxpayer, she is subject to a further £225 income tax on an interest distribution of £800. c. if Cerys is an additional-rate taxpayer, she is subject to £450 income tax on an interest distribution of £1,000. d. if Cerys is a non-taxpayer, she can reclaim any tax paid from HM Revenue and Customs. e. if Cerys is a basic-rate taxpayer, she has no further liability if the distribution is within her personal savings allowance.

a. the distributions are paid gross. c. if Cerys is an additional-rate taxpayer, she is subject to £450 income tax on an interest distribution of £1,000. e. if Cerys is a basic-rate taxpayer, she has no further liability if the distribution is within her personal savings allowance.

Multiple Response Richard, a higher-rate taxpayer, is considering an offshore investment. When deciding between reporting and non-reporting funds he should be aware that: You must select ALL the correct options to gain the mark: a. non-reporting funds are usually roll-up funds. b. the annual capital gains tax [CGT] exemption cannot be used to mitigate any CGT tax liability in a reporting fund. c. dividends paid from reporting funds constituted as companies are taxed as foreign dividends. d. he will only be taxed on his share of the income within a reporting fund if an actual distribution is received. e. for non-reporting funds, the highest level of tax that Richard would pay is 40%, if his tax status remains unchanged.

a. non-reporting funds are usually roll-up funds. c. dividends paid from reporting funds constituted as companies are taxed as foreign dividends. e. for non-reporting funds, the highest level of tax that Richard would pay is 40%, if his tax status remains unchanged.

Multiple Response 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. bonuses can smooth out returns in times of poor investment performance. b. she may benefit from additional profits should the life office demutualise in the future. c. a market value adjustment [MVA] will always be applied on her death. d. over the last ten years, the returns on most with-profit policies have not provided a 'real return'. e. they provide investors who are relatively risk-averse with some exposure to the equity markets.

a. bonuses can smooth out returns in times of poor investment performance. b. 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 markets.

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

a. structured product. | e. guaranteed growth bond.

Multiple Response Kevin's life assurance policy will be deemed a qualifying policy if: You must select ALL the correct options to gain the mark: a. Kevin is a UK-resident in the year of encashment. b. the premiums Kevin pays in any one year are not more than double those payable in any other year. c. its term is at least ten years. 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.

b. the premiums Kevin pays in any one year are not more than double those payable in any other year. c. its term is at least ten years.

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

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

Multiple Response 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. exposure to an underlying asset in exchange for a margin payment. c. security of settlement since they use the London Clearing House [LCH]. d. the ability to keep an open position for some time.

b. exposure to an underlying asset in exchange for a margin payment. c. security of settlement since they use the London Clearing House [LCH]. d. the ability to keep an open position for some time.

Multiple Response In the absence of any investment powers in a trust deed, how can the trustees of a trust set up in England and Wales invest money within the trust? You must select ALL the correct options to gain the mark: a. They can invest as if the funds were their own. b. They must ensure that the fund is suitable. c. They must adhere to the terms of the Trustee Investment Act 1961. d. They must ensure that the fund is diversified. e. They must have at least 50% of the fund in fixed income.

a. They can invest as if the funds were their own. b. They must ensure that the fund is suitable. d. They must ensure that the fund is diversified.

Multiple Response Sasha, an investor in a discretionary portfolio, is about to receive her first summary portfolio valuation from her investment manager. Sasha should understand that: You must select ALL the correct options to gain the mark: a. the value of her portfolio must have fallen by 10% or more since the last summary portfolio valuation. b. it would include the addition of cash or stock. c. she can expect to receive another summary portfolio valuation in three months' time. d. the costs and charges impacting her investment will be broken down into separate components. e. she has received this because she made the investments about a year ago.

b. it would include the addition of cash or stock. c. she can expect to receive another summary portfolio valuation in three months' time. d. the costs and charges impacting her investment will be broken down into separate components.

Multiple Response Albert is confused about the values used for various investment ratios. Which has he understood correctly? You must select ALL the correct options to gain the mark: a. The Sharpe ratio includes the return on the portfolio, the risk-free rate and beta. b. The Sharpe ratio does not include the return on the benchmark. c. Beta is used in the information ratio amongst other things. d. The information ratio includes tracking error amongst other things. e. Jensen's alpha includes the standard deviation of the portfolio in its formula.

b. The Sharpe ratio does not include the return on the benchmark. d. The information ratio includes tracking error amongst other things.

Multiple Response What does it mean if a fund returns an average of 11% per year, compared with a benchmark return of 9%, and has a tracking error of 5%? You must select ALL the correct options to gain the mark: a. If the performance of both the fund and the benchmark were 2% higher, the information ratio would remain the same. b. The fund manager has, on a risk-adjusted basis, outperformed the market. c. The fund's information ratio is 0.4. d. Better returns could probably be achieved by using a tracker fund. e. The relative return achieved by the fund manager is 6%.

a. If the performance of both the fund and the benchmark were 2% higher, the information ratio would remain the same. b. The fund manager has, on a risk-adjusted basis, outperformed the market. c. The fund's information ratio is 0.4.

Multiple Response Risk-adjusted returns can be measured using: You must select ALL the correct options to gain the mark: a. the Sharpe ratio. b. the information ratio. c. Beta. d. Alpha.

a. the Sharpe ratio. b. the information ratio. d. Alpha.

Multiple Response Liz is reviewing the performance of her portfolio, using the Sharpe ratio of each holding to do so. She should be aware that: You must select ALL the correct options to gain the mark: a. the higher the Sharpe ratio, the greater the fund manager can be said to have added value. b. the lower the Sharpe ratio, the more the investment can be said to compensate the investor for the risk taken. c. a positive Sharpe ratio indicates that a risk-free asset would have performed better than the investment being analysed. d. it will show the return expected from a security, given its beta, and the return it has actually produced. e. it will show the fund's risk-adjusted performance.

a. the higher the Sharpe ratio, the greater the fund manager can be said to have added value. e. it will show the fund's risk-adjusted performance.

Multiple Response Portfolio A generates a return of 12% and the portfolio has a standard deviation of 10%. Portfolio B generates a return of 9% and the portfolio has a standard deviation of 5%. If the risk free return is 4%: You must select ALL the correct options to gain the mark: a. portfolio A has a Sharpe ratio of 0.8. b. the manager of portfolio A has taken more investment risk than the manager of portfolio B. c. portfolio B has a Sharpe ratio of 1. d. portfolio A has the best risk-adjusted performance. e. portfolio B is likely to be a tracker fund.

a. portfolio A has a Sharpe ratio of 0.8. b. the manager of portfolio A has taken more investment risk than the manager of portfolio B. c. portfolio B has a Sharpe ratio of 1.

Zane, a higher-rate taxpayer, owns a conventional gilt which he inherited from his father. It has 11 years remaining until redemption. He should be aware that: Select one: a. the price of the gilt will always rise as it reaches its maturity. b. he will not be able to sell the gilt prior to its maturity. c. if the coupon is above current interest rates, the bond should trade above par. d. the yield on the gilt will always be the same as the coupon.

c. if the coupon is above current interest rates, the bond should trade above par.

Max owns a number of cumulative preference shares. In terms of dividend payments and rights: Select one: a. he will never have voting rights. b. his payment of dividends will rank behind ordinary share holders. c. he may receive a fixed dividend and may also have voting rights. d. he will receive a fixed and guaranteed dividend.

c. he may receive a fixed dividend and may also have voting rights.

Company A has a much higher price earnings ratio than company B. They are in the same sector. This indicates that: Select one: a. company A is a better buy than company B. b. company B is more highly rated by the market. c. company B is better value. d. company A is more highly rated by the market.

d. company A is more highly rated by the market.

In a boom period of an economic cycle, the most likely impact on the price of gilts is that they will: Select one: a. rise. b. stay the same as they were in a recession. c. rise and then level out. d. fall.

d. fall.

``` The returns from an investment have achieved an average return of 5%. If the investment has a standard deviation of 5%, approximately what percentage of returns are expected to be positive? Select one: a. 68%. b. 16%. c. 95%. d. 84%. ```

d. 84%.

The value of a portfolio of UK equities can be hedged by: Select one: a. selling both FTSE 100 future contracts and FTSE 100 put options. b. buying both FTSE 100 future contracts and FTSE 100 put options. c. buying FTSE 100 futures contracts or selling FTSE 100 put options. d. selling FTSE 100 futures contracts or buying FTSE 100 put options.

d. selling FTSE 100 futures contracts or buying FTSE 100 put options.

In respect of the capital asset pricing model, a: Select one: a. portfolio with a beta of less than one will be expected to outperform the market. b. portfolio's beta is not an indicator of the expected return. c. portfolio with a beta of one will be expected to return the same as the market. d. portfolio with a beta of more than one will be expected to underperform the market.

c. portfolio with a beta of one will be expected to return the same as the market.

According to research, all of the following are important factors that influence security returns, APART from: Select one: a. unanticipated inflation. b. changes in the default risk premium on bonds. c. changes in the expected level of industrial production. d. unanticipated changes in short-term interest rates.

d. unanticipated changes in short-term interest rates.

Many investors in equities saw dramatic falls in the value of their portfolios following the global financial crisis in 2008. This was an example of which type of risk? Select one: a. Event. IncorrectIncorrect, chapter reference 6A1 b. Investment specific. c. Non-systematic. d. Systematic.

d. Systematic.

``` Myra is investing £120,000 in a retail non-index tracker UCITS fund. She is keen that the fund is diversified. You can reassure her that the maximum monetary holding she will have in the shares of one company is: Select one: a. £10,000. b. £18,000. c. £6,000. d. £12,000. ```

d. £12,000.

Shane's unit trust is invested in a UK Equity Income fund. Virat's open ended investment company is invested in a UK Corporate Bond Fund. When considering the income distributions they receive from their investments, it would be correct to say that: Select one: a. both will be paid net of 20% tax. b. both will be paid with no tax deducted. c. Shane's will be paid net of 10% and Virat's will be paid net of 20% tax. d. Shane's will be paid with no tax deducted, and Virat's will be paid net of 20%.

b. both will be paid with no tax deducted.

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``` John, a higher-rate taxpayer, firmly believes he will be a basic-rate taxpayer when he needs to realise any investments. If he is looking to invest offshore, which of these options is most likely to be appropriate for him? Select one: a. Reporting fund. b. Index fund. c. Distributor fund. d. Non-reporting fund. ```

d. Non-reporting fund.

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

c. protected equity bond.

``` 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. £53,000. b. £60,000. c. Nil. d. £13,000. ```

a. £53,000.

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 and the shares will not qualify for IHT business relief. b. The income tax relief given is recovered from the estate but the shares will 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.

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

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

c. some have additional risk via synthetic replication and they all are likely to experience a degree of tracking error.

``` A fund manager's investment strategy is designed to match future liabilities. The fund is most likely to be linked to a[n]: Select one: a. distribution bond. b. final salary pension scheme. c. investment trust. d. stakeholder pension. ```

b. final salary pension scheme.

``` If Shannon's investment portfolio consists of 75% equities, 10% property, 10% bonds and 5% cash her risk profile is most likely to be: Select one: a. growth. b. speculative. c. adventurous. d. balanced growth. ```

c. adventurous.

``` An adviser invests a client's funds in accordance with an asset allocation model which specifies a range for equities of 65% to 75%. Eight months later, based on the adviser's assessment of the outlook, he increases the portfolio equity content from 70% to 75%. This would be best described as a[n]: Select one: a. strategic move. b. balance move. c. optimisation move. d. tactical move. ```

d. tactical move.

``` Sam, an existing client, has 60-70% of his assets invested in equities long term. If his fund manager decides to change this for the next 12 months to 80% in equities, this is an example of: Select one: a. tactical asset allocation. b. strategic asset allocation. c. strategic modelling. d. stochastic allocation. ```

a. tactical asset allocation.

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``` Sanjay is a portfolio manager. He has strong convictions about investing in shares in renewable energy firms as he expects them to provide long-term sustainable growth over other shares. What is this investment style known as? Select one: a. Top-down. b. Value. c. Growth at a reasonable price [GAARP]. d. Momentum. ```

c. Growth at a reasonable price [GAARP].

Usain has a portfolio which includes exchange-traded funds [ETFs]. What would be the primary reason for using this type of passive investment? Select one: a. To minimise costs. b. To outperform active fund managers. c. To minimise the possibility of returns diverging from the chosen index. d. To remove volatility from his portfolio.

c. To minimise the possibility of returns diverging from the chosen index.

``` Yvonne is 42 and a higher-rate taxpayer. She wishes to invest £10,000 over the long-term with the aim of capital growth and her main objective is income tax efficiency. Yvonne is most likely to invest in a[n]: Select one: a. offshore bond. b. venture capital trust. c. personal pension. d. ISA. ```

c. personal pension.

Multiple Response Neil is a UK-based investor considering investing in a non-sterling offshore account. He should be aware that: You must select ALL the correct options to gain the mark: a. strong currencies do not strengthen continuously against sterling. b. some foreign countries do not have the same level of supervisory structures as the UK. c. high rates of interest are usually offered by countries with potentially collapsing currencies. d. strong currencies make up for their low interest rate with currency gains. e. the Financial Services Compensation Scheme covers accounts held outside mainland UK by UK-based investors.

a. strong currencies do not strengthen continuously against sterling. b. some foreign countries do not have the same level of supervisory structures as the UK. c. high rates of interest are usually offered by countries with potentially collapsing currencies.

Multiple Response Henry purchased a fixed interest security cum dividend 30 days before the next income payment was due. This means that: You must select ALL the correct options to gain the mark: a. he will receive the full six months' interest on the next interest payment date. b. the seller will receive the next interest payment. c. he will pay less for the security than if the purchase had been ex dividend. d. he will pay the clean price less interest accrued up to the settlement date. e. the amount paid by Henry for the security will be the dirty price.

a. he will receive the full six months' interest on the next interest payment date. e. the amount paid by Henry for the security will be the dirty price.

Multiple Response Connor directly owns an index-linked gilt, issued in 2011. This detail allows you to confirm that: You must select ALL the correct options to gain the mark: a. the initial coupon would have been lower than for conventional stock. b. only his interest payment is adjusted in line with inflation. c. his gilt is liable to capital gains tax on disposal at any time. d. the full amount of interest received is taxable. e. his gilt uses the RPI rate three months prior to each payment date.

a. the initial coupon would have been lower than for conventional stock. d. the full amount of interest received is taxable. e. his gilt uses the RPI rate three months prior to each payment date.

Multiple Response GreatInvest plc is an established business, the share price of which has dramatically risen. Which two factors are most likely to have caused this? You must select ALL the correct options to gain the mark: a. Reported takeover activity. b. An incremental increase in the dividends paid by GreatInvest plc. c. A change in the company's management. d. A relatively upbeat assessment of future inflation rates. e. A relatively upbeat assessment of future trading conditions.

a. Reported takeover activity. | c. A change in the company's management.

Multiple Response When using investment ratios to compare the performance of two or more companies: You must select ALL the correct options to gain the mark: a. a high dividend cover will lead to an increased dividend next year. b. the dividend cover can be established using the earnings per share and the dividend per share. c. a high price earnings [P/E] ratio is normally a positive sign of the way in which the market is rating a company. d. the lower the dividend cover the better. e. a low net asset value [NAV] per share indicates that a company is expensive.

b. the dividend cover can be established using the earnings per share and the dividend per share. c. a high price earnings [P/E] ratio is normally a positive sign of the way in which the market is rating a company.

Multiple Response Fidel wants to understand how the FTSE 100 index works. He should be advised that the: You must select ALL the correct options to gain the mark: a. larger the company, the bigger the weighting in the index. b. FTSE is weighted by market capitalisation. c. price movement of a small company affects the index as much as that of a larger company. d. weightings of companies with less than 75% of shares available for public trading are reduced to reflect limited availability.

a. larger the company, the bigger the weighting in the index. b. FTSE is weighted by market capitalisation. d. weightings of companies with less than 75% of shares available for public trading are reduced to reflect limited availability.

Multiple Response If Mary wishes to rent out a spare room in her house to her friend Lilly, under the rent-a-room scheme: You must select ALL the correct options to gain the mark: a. Lilly must agree to stay at the property for at least six months in order for Mary to be able to claim the relief. b. Mary will always have a choice as whether to claim the relief or not. c. Mary can deduct expenses incurred from any rent received and then deduct £7,500 in order to calculate any tax due. d. Mary is allowed to include charges for cooking and cleaning towards the £7,500 limit.

b. Mary will always have a choice as whether to claim the relief or not. d. Mary is allowed to include charges for cooking and cleaning towards the £7,500 limit.

Multiple Response The first income distribution from a unit trust includes an equalisation payment, which: You must select ALL the correct options to gain the mark: a. is partially subject to income tax. b. is fully subject to income tax. c. aims to allow the same pence per unit dividend payment to be made to all unitholders. d. represents a partial refund of the original capital invested.

c. aims to allow the same pence per unit dividend payment to be made to all unitholders. d. represents a partial refund of the original capital invested.

Multiple Response 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. Non-savings income, such as rent, is received net of 20% notional tax. d. Gains on gilts and corporate bonds are exempt from capital gains tax. e. Dividends from UK companies are taxed at 20%.

a. Capital gains on shares and property are taxed at 20%. | d. Gains on gilts and corporate bonds are exempt from capital gains tax.

Multiple Response 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. open ended investment companies can qualify as PAIFs. c. she may receive three different types of distributions. d. property related income is distributed to investors gross as equity income. e. property related income is exempt from taxation in the fund.

a. non-property income in the PAIF is subject to corporation tax at 20%. b. open ended investment companies can qualify as PAIFs. c. she may receive three different types of distributions. e. property related income is exempt from taxation in the fund.

Multiple Response When 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 greater the increase in its price, the greater the intrinsic value. d. the duration to its expiry is not relevant to its value. e. this gives the investment manager the right to sell the underlying asset.

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

Multiple Response 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. may invest in commodities and private equity. b. will look to match the performance of a market index. c. is likely to have a similar investment strategy to other absolute return funds. d. will always have a high proportion of equity investments. e. may use derivatives to protect against downside risk.

a. may invest in commodities and private equity. | e. may use derivatives to protect against downside risk.

Multiple Response Phil's investor policy statement may need to be revised as a result of: You must select ALL the correct options to gain the mark: a. him divorcing his wife. b. an increase in the base interest rate. c. changes announced to income tax rates. d. an expected short-term weakening of sterling. e. an expected long-term decline in equity returns.

a. him divorcing his wife. c. changes announced to income tax rates. e. an expected long-term decline in equity returns.

Multiple Response Grant has recently received a summary portfolio valuation. What information is this likely to include? You must select ALL the correct options to gain the mark: a. A general summary of investment markets. b. Expected dividends. c. A price history. d. A valuation and income summary. e. Purchases and sales.

d. A valuation and income summary. | e. Purchases and sales.

Multiple Response When calculating the money-weighted return of a portfolio, it is necessary to take into account: You must select ALL the correct options to gain the mark: a. the value of the portfolio at the start of the period. b. sub-periods between the addition or withdrawal of capital. c. capital added to or taken from the portfolio. d. the alpha of the portfolio. e. the income paid out to the investor during the period.

a. the value of the portfolio at the start of the period. c. capital added to or taken from the portfolio. e. the income paid out to the investor during the period.

Multiple Response Risk-adjusted returns can be measured using: You must select ALL the correct options to gain the mark: a. the information ratio. b. beta. c. the money-weighted rate of return. d. the time-weighted rate of return. e. Jensen's alpha.

a. the information ratio. | e. Jensen's alpha.

Multiple Response The information ratio is applied to evaluate the performance of a fund manager whose average portfolio return is 7% compared with the benchmark return of 11%. The tracking error is 5%. This analysis indicates that the: You must select ALL the correct options to gain the mark: a. fund manager is more likely to have a passive fund management approach than an active approach. b. investor would probably have achieved better returns by using a tracker fund. c. fund manager is likely to have outperformed the average comparable fund. d. risk-adjusted return is deemed to be negative. e. fund returned in excess of the risk-free rate.

b. investor would probably have achieved better returns by using a tracker fund. d. risk-adjusted return is deemed to be negative.

Multiple Response Performance attribution: You must select ALL the correct options to gain the mark: a. can show up underperformance in terms of asset allocation decisions. b. is useful in terms of evaluating the contribution to the return of a portfolio due to stock selection. c. requires the use of an appropriate benchmark. d. is not suitable for use in active portfolios. e. is a forward looking measure.

a. can show up underperformance in terms of asset allocation decisions. b. is useful in terms of evaluating the contribution to the return of a portfolio due to stock selection. c. requires the use of an appropriate benchmark.

Question 8 out of 25: David and Joe are registered civil partners. They own a non-qualifying bond jointly. David is a higher rate taxpayer and Joe a basic rate taxpayer. If they surrender the bond for a gain, what is the tax position if the cheque is sent to David? a. David will be taxed on the full gain b. They will each be taxed on their half c. They will both be taxed on the full gain d. There will be no tax to pay

b. They will each be taxed on their half

``` Question 14 out of 25: Which of these bond ratings would result in the investment being regarded as sub-investment grade? a. BBB+ b. BBB c. All of these d. BBB- ```

d. BBB-

Question 23 out of 25: Who would protect the interests of investors in an OEIC? a. The financial compensation scheme b. The financial adviser that made the sale c. The depository d. The Authorised Corporate Director

c. The depository

``` Question 1 out of 25: David invests £100,000 in a non-qualifying investment bond. He surrenders it 5 complete years later for £150,000. If his income is £1000 below the higher rate threshold, what tax will be due? a. £18,000 b. £4,500 c. Nil d. £9,000 ```

d. £9,000 Feedback: The gain of £50,000 is divided by the number of years the plan has been in force (complete years). The result is added to this years income to see how much falls into the higher rate threshold. This amount is subject to tax at 20% x the number of years. In this example, this means £9000 x 20% x 5 years = £9000