Topic 6 Flashcards
Direct investments: cash and fixed interest securities
Investment based crowdfunding is FCA regulated.
True or False?
True.
Loan based crowd funding (peer to peer) is FCA regulated.
True or false?
True.
Donation based crowdfunding is FCA regulated.
True or false?
False.
Reward based crowdfunding is FCA regulated.
True or false?
False.
A bank deposit account is a good place to hold a ‘rainy day fund’.
True or false?
True. Deposit accounts allow instant access to funds and they are low risk because savings are protected by the FSCS up to £85k.
What, if any, is the minimum age at which a person can take out an NS&I Direct Saver?
a) There is no minimum age.
b) 16.
c) 18.
b) 16.
Interest on NS&I Income Bonds is tax‑free.
True or false?
False: interest is paid gross, but is taxable.
Jane has invested in short‑dated gilts. According to the UK Debt Management Office (DMO) definition, this means that:
a) the gilts will have a redemption date within the next seven years.
b) interest on the gilts will not be paid to her until the end of the term.
c) the gilts will have a redemption date within the next ten years.
d) she will be unable to access her capital until the end of the term.
a) the gilts will have a redemption date within the next seven years.
The main difference between corporate bonds and gilts is that corporate bonds:
a) usually pay a variable rate of interest.
b) are usually for larger amounts of money.
c) normally have no specified redemption date.
d) are considered to be higher‑risk investments.
d) are considered to be higher‑risk investments.
The main difference between a debenture and other types of corporate bond is that a debenture:
a) carries the right to vote at the company’s annual general meeting.
b) is usually secured on the assets of the company.
c) can be converted to ordinary shares of the company.
d) pays a fixed rate of interest.
b) is usually secured on the assets of the company.
A Eurobond is the equivalent of a gilt, but issued by a government within the eurozone.
True or false?
False: A Eurobond is a bond issued or traded in a country that uses a different currency other than the one in which the bond is denominated, and they can be issued by large companies, not just governments.
Jack opens an account so that his wages can be paid into it. He can use his account to pay bills such as utilities and rent via
direct debit, and he can use his debit card to make purchases online and in shops, but he cannot have an overdraft. What kind of account does Jack have?
a) Packaged account.
b) An interbank account.
c) A basic bank account.
d) A debit account.
c) A basic bank account.
A structured deposit account:
a) provides a guaranteed fixed return.
b) places the original capital at risk.
c) runs for a fixed term.
d) matches the return from an associated stock market index.
C. The total return is not guaranteed, although the original capital is guaranteed to be returned at the end of the fixed term. The total return is linked to the performance of an associated stock market index, although the return will usually be below the index’s actual return.
Income from an offshore deposit account is tax free for a UK resident.
True or false?
False.
Jerry has a corporate bond secured on the company’s assets. This is referred to as:
a) an investment bond.
b) loan stock.
c) a debenture.
d) a perpetual subordinated bond.
c) a debenture.
Income from a Eurobond received by a higher-rate taxpayer qualifies for:
a) capital gains tax exemption.
b) the annual dividend allowance.
c) tax-free status.
d) personal savings allowance.
d) personal savings allowance.
Joanne has a basic bank account. Which feature is her account unlikely to offer?
a) Cash withdrawals from a Post Office.
b) Overdraft facility
c) ATM card.
d) Direct debits.
b) Overdraft facility
Amanda has a permanent interest-bearing shareholding. This means:
a) the investment is lower risk than a deposit account.
b) she has no guarantee that her original investment will be repaid.
c) she has a corporate bond holding.
d) the issuing organisation is now a bank.
b) she has no guarantee that her original investment will be repaid.
Sally has a National Savings and Investment (NS&I) product, but her friend Sarah cannot open a similar account because new issues of the product are no longer available. This means Sally has an NS&I:
a) guaranteed growth bond.
b) income bond.
c) premium bond.
d) investment account.
a) guaranteed growth bond.
An investor has bought a gilt ‘cum dividend’. This means they:
a) will receive 100% of the next due interest payment.
b) will not receive any of the next due interest payment.
c) will be entitled to a bonus dividend on the next due interest date.
d) and the seller will each receive 50% of the next due interest payment.
a) will receive 100% of the next due interest payment.
Which of the following is true? Peer-to-peer lending is:
a) not protected by the Financial Services Compensation Scheme.
b) a direct contract between one lender and one borrower.
c) regulated by the Prudential Regulation Authority.
d) co-ordinated by banks and building societies.
a) not protected by the Financial Services Compensation Scheme.
Kimberley’s paid £105 for a 4% Treasury gilt with a par value of £100. What is the running yield of the gilt?
a) 2.5%.
b) 3.8%.
c) 4%.
d) 5%.
b) 3.8%.
The running yield is the income of £4 (par value of £100 x 4%) as a percentage of the £105 price paid = 3.8%.
Jim is a higher-rate taxpayer who has investments in gilt-edged securities that pay interest of £10,000 pa. He has not elected to change the original tax treatment of the gilts.
How much tax, if any, will be deducted at source from the payment made to him?
a. None.
b. £1,000.
c. £2,000.
d. £4,000.
a. None.
Which statement best explains the tax treatment of National Savings and Investments (NS&I) Income Bonds?
Income:
a. is paid gross but is taxable.
b. is paid net of 10% savings tax, and higher and additional-rate taxpayers must pay any remaining tax through their tax return.
c. is paid net of basic-rate tax, and higher and additional-rate taxpayers must pay any remaining tax through their tax return.
d. paid is always tax-free.
a. is paid gross but is taxable.
