Topic 15 Flashcards
Which calculation is used to determine the ‘real’ rate of return on a savings account?
Question 1 options:
a)
Nominal interest rate minus the rate of inflation.
b)
Rate of inflation plus the nominal interest rate.
c)
Nominal interest rate divided by the rate of inflation.
d)
Rate of inflation divided by the nominal interest rate.
A
There are no negative aspects to consolidating a credit card debt into a mortgage.
Question 2 options:
a) True
b) False
False
The debt will be secured as part of an increased mortgage, which means there is more chance of repossession if the borrower defaults on the mortgage.
An investment product’s tax treatment is the most important factor when deciding suitability.
Question 3 options:
a) True
b) False
False
Tax is just one factor in assessing suitability – risk, accessibility, product type, minimum contributions and investment term are just some of the other factors to be considered.
What percentage of national average earnings is the state pension intended to provide?
Question 4 options:
a)
20%.
b)
25%.
c)
40%.
d)
50%.
B
Which of the following would be of least concern in later life planning?
Question 5 options:
a)
Estate planning.
b)
Power of attorney.
c)
Income protection.
d)
Long‑term care insurance.
C
What is the purpose of the mortgage stress test?
Question 6 options:
a)
To ensure the mortgage will be affordable if interest rates increase.
b)
To confirm the borrower’s income and expenditure.
c)
To assess the strength and service standards of the lender.
d)
To ensure the mortgage is suitable in view of the borrower’s circumstances
A
Bland Plc has taken out a key employee assurance policy on Jim, the sales director. In order to qualify as a business expense for corporation tax purposes, the policy would need to be:
Question 7 options:
a)
a term assurance policy with a term of at least ten years.
b)
a non-qualifying life assurance policy.
c)
a term assurance policy with a term of five years or less.
d)
a whole-of-life policy.
C
Shareholder protection is appropriate for:
Question 8 options:
a)
private limited companies.
b)
limited liability partnerships.
c)
public limited companies and large corporations.
d)
private limited companies and large corporations.
A
Which of the following statements is incorrect in relation to the effect of a breadwinner’s death on their family?
Question 9 options:
a)
The surviving partner may need to work to maintain the family.
b)
State benefits are designed to ensure a good standard of living for the surviving family.
c)
There may be a need for the survivor to fund childcare.
d)
The survivor may struggle to maintain mortgage payments.
B
Which of the following is not a usual method of setting up a partnership agreement?
Question 10 options:
a)
Cross-option agreement.
b)
Automatic accrual.
c)
Buy-and-sell agreement.
d)
Automatic aggregation agreement.
D
For which of the following borrowers might a fixed‑rate
mortgage be most suitable?
a) Ruth, who feels that interest rates will stay the same for
the next few years.
b) Sean, who feels that lenders should never charge
arrangement fees.
c) Aditya, who is convinced that interest rates will fall sharply
in the short term.
d) Nigel, who believes that interest rates will rise significantly
in the near future
D
Which one of the following repayment vehicles would be
suitable for a client who wants an interest‑only mortgage, but
insists that the product must guarantee to pay off the mortgage
at the end of the term?
a) Full with‑profits endowment.
b) Low‑cost endowment.
c) ISA.
d) Unit‑linked endowment.
A) The sum assured on a full with‑profits endowment is set at a level
equal to the mortgage debt so, as long as payments are maintained, it
will guarantee to repay the mortgage at the end of the term.
?
If the cost of living is rising, what is likely to be the main
priority of a customer making an investment?
a) To avoid incurring any further income tax liability.
b) To protect money against the effects of inflation.
c) To be able to access it immediately.
d) To invest money securely
b) To protect money against the effects of inflation.
If the rate of inflation is 2.5 per cent, what yield must an
investor obtain on their deposit account in order to achieve a
real return of 3 per cent?
a) 0.5 per cent.
b) 2.5 per cent.
c) 5.5 per cent
c) 5.5% (5.5 – 2.5 = 3%)
Nina is a basic‑rate taxpayer. She pays £162 pm by direct debit
into her personal pension plan. How much is actually invested
in her plan each month including tax relief?
a) £194.40.
b) £202.50.
c) £283.50.
d) £270.00
b) £202.50. The £162 is the ‘net’ contribution. To work out the ‘gross’
contribution, divide the net contribution by 80 and multiply by 100 (do
not add 20 per cent to the net contribution).
£162 ÷ 80 × 100 = £202.50
