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CeMAP 1 > Topic 8 > Flashcards

Topic 8 Flashcards

1
Q

When managing unit trusts what does the term ‘open-ended’ mean?

A. That clients can buy more units
B. That the fund manager can create more units
C. That the fund manager does not need to value the units
D. That there is flexibility in the taxation arrangements of units

A

B. That the fund manager can create more units

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2
Q

Which of the following statements is correct in respect of a unit trust?

A. Any gain made on the sale of units by an investor may be liable to capital gains tax

B. The fund manager is able to borrow

C. An investor who requires mainly capital growth will be best advised to purchase distribution units

D. The price at which an investor purchases unit in the fund is referred to as the bid price

A

A. Any gain made on the sale of units by an investor may be liable to capital gains tax

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3
Q

Historically, charges on unit trusts have generally comprised:

A. a bid offer spread only
B. an annual management charge only
C. an annual management charge and a policy fee
D. a bid offer spread and an annual or monthly management charge

A

D. a bid offer spread and an annual or monthly management charge

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4
Q

Which one of the following statements is FALSE of unit trusts?

A. They can be used to provide a balance of regular income and capital growth
B. They will always provide a high rate of return in the short term
C. They should be viewed as a long-term investment
D. They can be used to plan for school fees

A

B. They will always provide a high rate of return in the short term

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5
Q

What are the regular payments made out of investment trusts known as?

A. Distributions
B. Coupons
C. Allocations
D. Dividends

A

D. Dividends

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6
Q

Under a unit trust what does the cancellation price represent?

A. The maximum price at which a full encashment of the units may be made

B. The minimum price at which investors may cash in their units

C. The price applicable to investors if they cancel during the cooling off period

D. The price at which the manager will buy back units if underlying assets do not have to be traded

A

B. The minimum price at which investors may cash in their units

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7
Q

Unit trusts are strictly governed by a set of terms. In what document are these terms defined?

A. Trust Certificate
B. Trust Deed
C. Contract Letter
D. Contract Note

A

B. Trust Deed

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8
Q

Which one of the following is NOT the responsibility of a unit trust fund manager?

A. To establish the cancellation price of units
B. To buy back units from clients when they wish to sell
C. To manage the trust fund’s investments
D. To ensure that the trustee complies with the trust deed

A

D. To ensure that the trustee complies with the trust deed

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9
Q

At what rate would capital gains tax be charged on gains made on the sale of a unit trust investment by a higher rate taxpayer?

A. 10%
B. 18%
C. 22.5%
D. 20%

A

D. 20%

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10
Q

Who is responsible for paying capital gains tax from unit trusts to HMRC?

A. The unit holder
B. The trustees
C. The unit trust company
D. The fund managers

A

A. The unit holder

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11
Q

Which one of the following BEST describes an investment trust?

A. A unit linked single premium non-qualifying whole-of-life policy investing solely in shares

B. A trust which invests solely in shares in the Alternative Investment Market

C. A company which invests in shares of other companies

D. A partnership which invests in gilt-edged securities

A

C. A company which invests in shares of other companies

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12
Q

What is the MAXIMUM amount, if any, that an individual can invest in an investment trust in any one tax year?

A. £3,000
B. £6,000
C. £9,000
D. Unlimited

A

D. Unlimited

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13
Q

Gains made within an investment trust are subject to what tax, if any, in the hands of the fund managers?

A. Basic rate tax
B. Capital gains tax
C. Corporation tax
D. None

A

D. None

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14
Q

If the shares of an investment trust stand at a discount below the net asset value per share, which one of the following is CORRECT?

A. Capital growth is potentially higher than direct investment
B. A minimum level of capital growth is guaranteed
C. Capital growth will be negligible
D. Income growth is forsaken for capital growth

A

A. Capital growth is potentially higher than direct investment

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15
Q

Which one of the following is TRUE of open-ended investment companies (OEICS)?

A. Switches are made on a mid-price basis
B. Shares are bought and sold at the same price on any given day
C. There is no initial charge
D. The initial charge is included in the bid/offer spread

A

B. Shares are bought and sold at the same price on any given day

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16
Q

Which one of the following is NOT a feature of open-ended investment companies (OEICS)?

A. Investments are pooled
B. New funds are easily created
C. The number of shares issued is restricted
D. Many types of share may be included

A

C. The number of shares issued is restricted

17
Q

Non-Structured Capital at risk products normally provide a minimum return of:

A. Nothing
B. 85% of the initial capital invested
C. 50% of the initial capital invested
D. 100% of the initial capital invested

A

D. 100% of the initial capital invested

18
Q

Unit trusts, investment trusts and open-ended investment company shares are suitable for which profile of investor?

A. A long-term investor who would still like reasonably easy access to funds
B. A long-term investor who is happy to give notice to withdraw funds
C. A low-risk investor who requires a guaranteed income
D. A high-risk investor who likes to play the stock market

A

A. A long-term investor who would still like reasonably easy access to funds

19
Q

Why does investment in a collective investment scheme carry a reduced risk when compared with direct investment in equities?

A. because collective investment schemes invest in a large number of different companies

B. because fund managers can negotiate higher dividend payments

C. collective investment schemes invest in equities that are not available to individuals

D. Collective investments must guarantee as a minimum, the return of capital invested

A

A. because collective investment schemes invest in a large number of different companies

20
Q

Which of the following is true in relation to the manager of an investment trust?

A. He cannot borrow funds
B. He can borrow to improve income and capital growth
C. He can issue more units or repurchase units according to demand
D. he can cancel units if the fund grows sharply

A

B. He can borrow to improve income and capital growth

21
Q

Dave has an investment bond issued by a life office, invested in their managed fund. At what rate is the provider’s underlying fund taxed?

A. 18%
B. 20%
C. 22%
D. 40%

A

B. 20%

22
Q

Which one of the following describes MOST investment bonds?

A. A single premium, unit linked, non-qualifying whole-of-life assurance
B. A regular premium, unit linked, qualifying whole-of-life assurance
C. A single premium, unit linked, qualifying whole-of-life assurance
D. A regular premium, unit linked, non-qualifying whole-of-life assurance

A

A. A single premium, unit linked, non-qualifying whole-of-life assurance

23
Q

Tom, a higher rate taxpayer, has a single premium investment bond. How will any capital gains be treated?

A. Tom will pay inheritance tax at 20% on taxable gains that are made
B. Tom will pay an extra 20% income tax on encashment of the bond
C. The insurance company bears the entire capital gain tax burden
D. The insurance company charges Tom for the gain

A

B. Tom will pay an extra 20% income tax on encashment of the bond

24
Q

Jack is currently a higher rate taxpayer with 5 years to go before retirement. He has an investment bond that he is using to save for his retirement, when he expects his income to drop significantly. What feature of this product might he find especially useful when he has retired?

A. The 5% annual allowance for withdrawals can be carried forward to future years.

B. Withdrawals of any amount can be made free of tax, at any time

C. He can switch investment funds within the bond at low or no cost

D. He can split the bond into smaller policies for tax-free encashment at any stage

A

A. The 5% annual allowance for withdrawals can be carried forward to future years.

CeMAP 1 (25 decks)

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