Exam Questions Flashcards
How is a return achieved on a Treasury Bill?
A. They pay an interest amount on a daily basis
B. Interest earned is dependent on market conditions and is paid monthly
C. Interest earned is the difference in the purchase price and maturity value
D. They pay a lump sum interest payment at the end of the maturity period
C
Regarding Fixed Interest Stock, the “dirty price” refers to the:
A. ‘clean price’ plus an additional amount for junk or high yielding bonds
B. ‘clean price’ of the stock plus or minus any interest adjustments
C. mid-market price quoted in major newspapers
D. value of stock over the period until maturity as it moves above or below par
B
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
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
Pauline requires £21,000 in 4 years’ time from £15,000 available now. What annual rate of return will she require in order to achieve this?
A. 6.98%
B. 8.78%
C. 7.24% D. 8.42%
B
Investors in which asset classes are usually most affected by inflation? A. Equities and cash B. Property and equities C. Cash and fixed interest D. Fixed interest and property
C
The following clients each have an OEIC that gives them a dividend as follows:
Kin Basic Rate Taxpayer £750
Belinda Higher Rate Taxpayer £1000
Maddy Additional Rate Taxpayer £250
What is the income tax liability for all three clients assuming they have all utilised their dividend allowance?
A. £326.39
B. £340.27
C. £476.50 D. £525.00
C
The minimum deposit in a Stakeholder cash ISA cannot be higher than: A. £1
B. £5 C. £10 D. £20
C
100% relief from inheritance tax is available on SEISs after: A. 1 year B. 18 months C. 2 years D. 3 years
C
Why is portfolio rebalancing an essential feature of asset allocation?
A. A divergence from a client’s asset allocation could mean higher risk than the
client is prepared to take
B. Research suggests rebalancing monthly provides significantly enhanced benefits
C. A client’s attitude to risk will always reduce over time
D. The economic environment presents new opportunities in different asset classes
over time
A
What effect did the financial crisis have on optimised portfolios created under Modern Portfolio Theory?
A. The portfolios did not deliver the expected diversification benefit as the
underlying rules of correlation on which it is based were not maintained
B. The optimised portfolios created under Modern Portfolio Theory fared better than
those created under the Pragmatists 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
Which style of investment management is often used by hedge fund managers?
A. Value
B. GAARP
C. Momentum
D. Contrarianism
D
A positive alpha indicates that the:
A. security has performed worse than would be predicted by its beta
B. risk free rate of return has been positive
C. security has performed better than would be predicted given its beta
D. asset allocation has proved to have had a positive impact
C
A portfolio was worth £55,000 at the start of the period and £60,000 and the end of the period with £5,000 income paid out during the period. What is the Money Weighted Rate of Return?
A. 18.2%
B. 9.1%
C. 12.8%
D. 11.9%
A
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
E. The interest rate is expressed in basis points
C, D, E
How do Ordinary shares and Preference shares differ? Tick all that apply.
A. Status ranking in the event of liquidation B. Yields C. Entitlement to dividend payments D. Voting rights E. Frequency of dividend payments
A, B, C, D
Which indices are aggregated into the FTSE-All Share Index? Tick all that apply.
A. FTSE AIM index series
B. FTSE 100
C. FTSE TMT
D. FTSE 250
B and D
What are the main conditions that need to be met in order for a Venture Capital Trust (VCT) 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 2 years
D. No more than 10% must be invested in any single company or group
A, B, C
What characteristics would you associate with a structured product? Tick all that apply.
A. Usually able to make early withdrawals
B. Fixed term
C. Pre-specified minimum or maximum returns
D. Ability to trade during life of product
B and C
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
A government can use fiscal measures to address declining GDP by:
A. reducing the Bank of England’s target inflation rate.
B. increasing the rate of Value Added Tax.
C. reducing the level of gilt issues.
D. reducing the burden of Corporation Tax.
D
A financial adviser has recommended collective investments which are negatively correlated to each other. This will ensure that they:
A. are capable of generating income and growth.
B. have a degree of diversification.
C. have a combined beta of 0.
D. have an alpha with a negative value.
B
Portfolio X consists of blue chip ordinary 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. Market risk.
B. Event risk.
C. Inflation risk
D. Liquidity risk
D
If a client has a collective investment where the share price is currently at a significant discount to the net asset value, what type of investment is it?
A. Investment trust.
B. OEIC.
C. Exchange Traded Fund.
D. Unit trust.
A
Alicia has fully surrendered an onshore single premium investment bond with a chargeable gain of £20,000 after 5 years. If she has no other savings income and her taxable income is £36,000, she should be aware that:
A. the full gain would be subject to 20% income tax.
B. she full gain would be subject to an additional 25% income tax.
C. she would have a personal savings allowance of £1,000.
D. she would have a personal savings allowance of £500.
D
A client who invests in a new issue of VCT shares would benefit from its tax treatment because:
A. the proceeds on death will be free of inheritance tax.
B. income tax relief is available at 30% up to a maximum of £200,000 per tax year.
C. shares must only be kept for three years to benefit from income tax relief.
D. an investor can potentially carry back income tax relief to the previous tax year.
B
Neil has agreed to have his portfolio managed on a passive basis. This means that he:
A. believes active fund managers will consistently outperform the benchmark index.
B. believes active fund managers will consistently underperform the benchmark index.
C. has increased his risk profile.
D. has reduced his risk profile.
B
What is the running yield on a corporate bond that has a clean price of £114, a par value of £100 and pays 5.2% income?
A. 4.56%.
B. 5.2%.
C. 7.85%.
D. 8.6%.
A
When agreeing the benchmark for an investment portfolio with a client, what is it always important to do?
A. Select the lowest risk benchmark from the available choices.
B. Use one constructed using Modern Portfolio Theory.
C. Use one that matches the mix of assets in the portfolio.
D. Select a benchmark that is positively correlated with the portfolio’s underlying assets.
C
An investor pays a clean price of £116.80 for £100 nominal value of stock with a 6% coupon. Assuming the stock has exactly six years to run until maturity, using the simplified method what is the gross redemption yield?
A. 2.74%
B. 2.80%
C. 5.14%
D. 8.80%
A
Kathryn is buying a primary residence for £140,000 and Michael is buying a primary residence for £260,000. How much more Stamp Duty Land Tax will Michael pay than Kathryn, if both are repeat purchasers?
A. £2,700
B. £3,000
C. £5,000
D. £6,400
A
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
An investment property is purchased for £180,000. The transaction costs totalled £3,600. If the rent is £800 per month, of which 20% is earmarked for general expenses, what will the net yield on this purchase be?
A. 4.18%
B. 4.27%
C. 5.22%
D. 5.33%
A
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
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
Stacey has recently bought her first house with a purchase price of £570,000. How much Stamp Duty Land Tax did she pay, if anything?
A. Nothing.
B. £18,500
C. £20,000
D. £28,500
B
A limited company has 10,000,000 ordinary shares in issue and £2,500,000 available for distribution as dividends. The current share price is 500p. What is the dividend yield?
A. 1%
B. 2.5%
C. 5%
D. 10%
C
Paulina purchases shares in two listed companies as per the following table
Equity Number purchased Purchase cost X 550 £9,800 Y 499 £10,600
What total Panel on Takeovers and Mergers (PTM) levy will she pay? A. £1 B. £2 C. £106 D. £204
A
A client invests £10,000 in each of the following three equity-based funds
Charge X 5.5% Initial Y 4.0% Exit Z 3.5% Exit Returns per annum 3.50% 4.00% 3.50%
Fund X has an initial charge only. Funds Y and Z have an exit charge only. At the end of the three years when all three funds are encashed, which investment, if any, will be worth the most? A. They will all be worth the same. B. Investment X. C. Investment Y. D. InvestmentZ.
C
The current price of share X is 247p and the earnings per share is 36p. The current price of share Y, in the same sector, is 206p and the earnings per share is 21p. 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 issignificantly underpriced.
C
Three assets are correlated as follows Asset X Y Z X 1.0 0.8 -0.2 Y 0.8 1.0 0.3 Z -0.2 0.3 1.0
In respect of these correlation values
A. if asset X rises by 7% asset Z is likely to rise by 2%.
B. if asset X rises by 9% asset Y is likely to rise by 7.2%.
C. if asset Z falls by 4% asset X is likely to fall by 0.8%.
D. if asset Z falls by 3% asset Y is likely to fall by 3%.
B
An investment manager recently completed four UK-registered share purchases on the same day
Method Crest Crest Stock transfer form Stock transfer form Purchase Price £1,500 £7,500 £1,500 £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
Stefan, a retail client, wishes to create non-correlation for his portfolio through the purchase of two assets as per the following table
Asset W X Y Z W 1.0 -0.3 -0.9 0.2 X -0.3 1.0 0.7 1.0 Y -0.9 0.7 1.0 0.5 Z 0.2 1.0 0.5 1.0
He would best achieve this by purchasing assets A. WandX. B. WandY. C. XandZ. D. Z and W.
D
Two companies have financial data as per the following table
Company X Y
Share Price 174p 220P
Earnings per share 28p 16p
Dividend per share 12p 11p
In respect of their dividend coverage
A. company X’s dividend cover is 4.35 times.
B. company X’s dividend cover is 0.43 times.
C. company Y’s dividend cover is 1.45 times.
D. company Y’s dividend cover is 20 times.
CD
Bikram, a higher-rate taxpayer, is considering an investment of £20,000 into each of two corporate bond funds within his stocks and shares ISA, as per the following table
Fund Type Running Yield
X Investment Grade 4.1% per annum
Y High yield 6.8% per annum
What total, combined income would he receive in the first year? A. £1,308 B. £1,744 C. £2,044 D. £2,180
D
A property investor owns two commercial properties as per the following table
Type Market value Borrowing Remaining lease term
Retail unit £460,000 £240,000 32 years
Industrial unit £345,000 £200,000 22 years
He should be aware that
A. the retail unit has the lower level of gearing.
B. the industrial unit is more sensitive to any short-term change in borrowing costs.
C. he will pay a higher rate of Stamp Duty Land Tax upon disposal of the retail unit.
D. he will be subject to void risk on the industrial unit only.
A
If the M0 measure of money growth is consistent, but the M4 measure shows a sharp decline, this is usually an indication that
A. deflation has been experienced.
B. interest rates have increased.
C. lending activity has reduced.
D. the velocity of money has increased.
C
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
The price of conventional gilts has recently fallen. The most likely reason is because
A. equity prices experienced a sharp rise.
B. an increase in the inflation rate was predicted.
C. interest rates have fallen.
D. real returns on cash-based investments fell.
B
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
When interpreting the money supply rates for the UK economy, a financial adviser should be aware that
A. change in the rate of money supply is the principal cause of change in the economic cycle.
B. contraction in the M0 measure indicates consumers are spending less money.
C. expansion of the M0 measure indicates banks are increasing their levels of new lending.
D. volatile money supply will lead to volatile inflation.
B
