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60 Cards in this Set

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An Investor pays a clean price of £116.80 for £100 nominal value if stock with a 6% coupon. Assuming the stock has exactly six years to run until maturity, what will the gross redemption yield be?
A. 2.74%
b. 2.80%
c. 5.14%
d. 8.80%
Kathryn, a repeat purchaser, is buying a flat for £140,000 and Michael is buying a house for £260,000. How much more Stamp Duty Land Tax will Michael pay compared to Kathryn?
a. £1,200
b. £3,600
C. £6,400
d. £7,800
A limited company has 6,000 ordinary shareholders. In the current financial year the profits attributable to these shareholders is £1,060,000 and net ordinary dividend payments are £410,000. What is the dividend cover?
a. 2.46
B. 2.59
c. 2.71
d. 3.87
An investment properly 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%
The share price of company X is 260p and the earnings per share is 18p. The share of company Y is 182p and the earnings per share is 31p. The price earnings ratios (p/e 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
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 HAND.
c. The price at which the securities will be redeemed.
d. Whether they were purchased on a direct or indirect basis.
A limited company has 10,000,000 ordinary shares in issue and £2,500,000 available for distribution as net dividends. The current share price is 500p. What is the dividend yield?
a. 1.0%
b. 2.5%
C. 5.0%
d. 10.0%
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 Y is significantly underpriced.
b. Share X is more highly flavoured be investors than share Y.
c. Share X will provide better value than share Y.
D. SHARE Y HAS HIGHER HIGHER EXPECTATIONS FOR GROWTH THAN SHARE X.
If the annual rate of inflation falls from 1.8% to minus 1.6%, this is an example of
A. DEFLATION
b. disinflation
c. monetary loosening
d. fiscal loosening
The price of conventional gilts has recently fallen. The most likely reason is because
a. equity prices experienced a sharp rise.
b. real returns on cash-based investments fell
C. AN INCREASE IN THE INFLATION RATE WS PREDICTED.
d. Interest rates have fallen
If the Government decides to address declining Gross Domestic Product (GDP) by using fiscal measures, this could be achieved
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.
If the M0 measure of money growth is consistent, but the M4 measure shows a sharp decline, this is usually an indication that
A. LENDING ACTIVITY HAS REDUCED.
b. the velocity of money has reduced.
c. interest rates have increased.
d. deflation has been experienced.
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.
In theory, there is a direct correlation between falling prices of Government gilts and the
a. fall in the currency's exchange value.
B. GENERAL INCREASE IN THE PRICE OF GOODS AND SERVICES.
c. level of equity dividends.
d. increase in demand for fixed-rate products.
An investment manager has constructed a portfolio of UK equities using Modern Portfolio Theory (MPT). One of the key limitations of this approach is that
a. performance will be derived from a relatively small number of shares.
b. income will often be sacrificed for capital growth.
c. diversification risk will be neglected.
D. SYSTEMATIC RISK CANNOT BE FULLY ADDRESSED.
An investor wants to create an equity portfolio using the Capital Asset Pricing Model (CAPM) theory which produces an expected return of 8% per annum. What key factor will they need to consider?
a. alpha.
B. BETA
c. covariance
d. standard deviation
The efficient frontier curve shows the optimum balance between
a. inflation and return
b. return and taxation.
C. RISK AND RETURN.
d. taxation and risk
An investor has just made an equity investment which carried a better value of 1. The Investment is most likely to be
a. an absolute return fund.
b. a fund of funds.
c. a hedge fund.
D. AN INDEX TRACKING EXACHANGE TRADED FUND (ETF)
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.
An actively managed equity portfolio is benchmarked against the FTSE 100 index. The portfolio has a beta of 0.85 and an alpha 1.15. What does this indicate about the investment manager's performance?
A. HE HAS OUTPERFORMED THE BENCHMARK.
b. he has underperformed the benchmark.
c. his fund is slightly more volatile than the benchmark
d. he has delivered returns in line with the benchmark.
Jim and Adrian own funds in the same sector. Jim's portfolio of shares has a beta of 1.2, whilst Adrian's portfolio has proved to be 30% more volatile than the market. This confirms that.
a. Adrian has made a higher percentage profit.
B. JIM'S FUND IS LESS VOLATILE THAN ADRIAN'S.
c. Adrian has smaller number of holdings than Jim.
D. Jim's fund holds more cash than Adrian's.
The Capital Asset Pricing Model (CAPM) states that the risks associated with an individual share within a market portfolio
a. are based solely on the level of non-systematic risk associated with it.
b. are based solely on the level of systematic risk assosiated with it.
C. ARE A COMBINATION OF SYSTEMATIC AND NON SYSTEMATIC RISK.
d. can only be calculated in relation to the other assets within the portfolio.
A deposit account pays an interest rate of 6% per annum, compounded on a quarterly basis. What will the annual equivalent rate (AER) be?
a. 6.09%
B. 6.14%
c. 6.28%
d. 6.42%
A lump sum of £10,000 is invested at 4% per annum for three years and then the resultant sum is reinvested at 5% per annum for two years. What will be the final sum at the end of the term?
a. £12,320.00
B. £12, 401.00
c. £12,520.87
d. £12,897.00
Bill and Wendy wish to fund a single school fees payment of £14,000 in four years time. if net interest of 5% per annum is earned, how much will they have to invest now?
a. £10,969.21
B. £11,517.89
c. £11,666.00
d. £12,093.99
An investor has increased the number of different equities held in his portfolio from 10 to 40. This action is most likely to
a. reduce market risk.
B. REDUCE SPECIFIC RISK
c.increase default risk
d. increase counterparty risk
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. default risk
b. event risk.
c. inflation risk
D. LIQUIDITY RISK
A UK investor holds a portfolio of overseas equities and is concerned about the exchange rate risk. Which strategy could he use to mitigate this risk?
a. arbitrage
b. gearing
C. HEDGING
d. pound costing averaging
An investor has a UK equity unit trust, National Savings & Investments (NS&I) Savings Certificates, a buy-to-let flat, and shares directly held in a listed property company. Which investment is likely to represent the greatest liquidity risk?
a. the UK equity unit trust.
b. the NS&I savings certificates
C. BUY-TO-LET FLAT
d. The property company shares
When considering unsystematic risk in equity markets, an investor should be aware that
A. HOLDING 50 DIFFERENT SHARES CAN REMOVE UNSYSTEMATIC RISK.
b. it cannot be completely eliminated
c. pound cost averaging will remove unsystematic risk.
d. UK equities should be avoided
Four clients hold different investment products. Which one of them would benefit from pound cost averaging?
a. Sue, who is paying £150 a month into a 10 year traditional with profits endowment policy.
B. MARY, WHO IS PAYING £200 A MONTH INTO A MAXIMUM INSVESTMENT PLAN (MIP), INVESTING IN A UK EQUITY FUND.
c. richard, who invested a £20,000 lump sum into an open-ended investment company (OEIC) in an emerging markets fund.
d. tom, who is paying £100 a month into cash ISA.
Angela has £8,000 and borrows a further £2,000 to purchas some shares. The purchase price of the shares was £2.00 and she susbequently sold them for £1.80 each. What percentage of her original capital would be lost?
a.10.0%
B. 12.5%
c. 17.5%
d. 20.0%
Stuart and Kathy, aged 51 and 43, have 2 children, Kelly, aged 16 and Noel, aged 14. What is the total amount the family could pay into cash ISAs in the 2010/2011 tax year?
a. £10,200
B. 15,300
c. £20,400
d. £30,600
Harry, a higer-rate taxpayer and Garth, an additional-rate taxpayer, have made a gain on their respective onshore investment bonds. Upon encashment if they each recieve a gain of £8,000, what is their combined total personal Income Tax liability?
a. £3,200
B. £4,000
c. £4,800
d. £6,400
Gemma, Linda and Natalie have have each recieved a £1,000 dividend from a UK Real Estate Investment Trust (REIT). Gemma is a basic-rate taxpayer, Linda a higher-rate taxpayer and Natalie an additional-rate taxpayer. The combined additional income tax liability on these
a. £450.00
b. £500.00
C. £611.11
d. £805.56
A hedge fund manager is reviewing his current potfolio and wishes to limit downside risk. He would be expected to address this by
a. increasing gearing
B. BUYING PUT OPTIONS.
c. deferring new investments.
d. buying call options.
Malcolm, a higher-rate taxpayer, invested £20,000 in an onshore investment bond and after four and a half years, makes his first partial surrender of £9,000. The Income Tax liability as a result of this withdrawal will be
A. £800
b. £1,000
c. £1,600
d. £1,800
Janet and Graham have made gains of £17,000 and £25,000 respectively in their unit trust holdings. Neither has made any other gains or losses in the 2010/2011 tax year. 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. £3,924
b. £4,360
C. £4,614
d. £7,560
Gordon and Sylvia are both UK higher-rate taxpayers. Gordon makes a gain of £10,000 from his onshore bond and Sylvia makes a gain of £10,000 under her offshore bond. The Income Tax liability will result in
a. gordon paying £200 more than sylvia
b. gordan paying £1,000 more than sylvia
C. SYLVIA PAYING £2,000 MORE THAN GORDAN.
d. sylvia paying £2,200 more than gordan.
An investment trust returns 6% over a given period, compared to the benchmark index which returns 8%. If the investment trust has a beta of 1, this difference can be explained by the
A. FUND HAVING A NEGATIVE ALPHA.
b. fund having a positive alpha.
c. fund having a standard deviation of 0.75.
d. fund having a standard deviation of 1.33.
James and Maria are married and have 3 children aged 16, 18 and 20. What is the maximum amount the family can pay into stocks and shares ISAs in the 2010/2011 tax year?
a. £20,400
b. £30,600
C. £40,800
d. £51,000
A client is unsure of the nature of her collective investments, except she has been correctly told there is a significant discount to Net Asset Value. What investments does she hold?
A. INVESTMENT TRUSTS
b. open-ended investment company shares (OEICs)
c. exchange traded funds
d. unit trusts
David and Karen are higher-rate taxpayers, in their 50s. 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 not pay tax whatsoever once retired.
Janet, a new client, has an existing portfolio and has a medium attitude to risk. Her adviser has recommended that her latest lump sum investment is fully invested is fully invested in government bonds. This recommendation is justified because
a. interest rates are expected to rise.
b. she is a higher-rate taxpayer.
C. ALL HER INVESTMENTS ARE CURRENTLY IN EQUITIES.
d. she has fully used her ISA allowances for the current tax year.
Doris, aged 68, has £200,000 which she needs to invest for income. As part of the solution, she has been advised to invest into an onshore investment bond. This is most likely to be because she
a. wishes to defer a recent capital gain.
b. wants to benefit from a gross roll up environment.
C. ALREADY HAS A TAXABLE INCOME OF £19,000 PER ANNUM.
d. wants security of captial.
Edward has recently recieved an inheritance and is considering phasing the cash proceeds into a range of equity unit trusts. What is the main benefit of doing this?
a. to address any market fluctuation.
B. TO REDUCE THE INVESTMENT'S VOLATILITY.
c. to enhance capital gains tax benefit.
d. to protect the unit trust's price from falling.
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 profie
d. has reduced his risk profile
A financial adviser completing a fact find and satisfying and know your client requirements will help the
A. CLIENT TO IDENTIFY THEIR INVESTMENT TIME HORIZON AND OBJECTIVES.
b. adviser to decide how to charge for his services.
c. client to choose between active or passive investment management.
d. advisor to calculate the total expenses ratio for his services.
An investment portfolio incorporating lifestyling would
A. REDUCE ITS EQUITY EXPOSURE IN LATER YEARS.
b. increase its equity exposure in the early years.
c. exactly match the client's attitude to risk.
d. maintain a balanced exposure across asset classes throughout its life.
A client is reviewing their portfolio and notices that when it was established, it was benchmarked against the FTSE All-Share Index and FTSE All Stocks Index. This suggests that their portfolio consists of
a. a diverse spread of UK equities, from blue chip to smaller companies.
b. an equal mix of equities and corporate bonds.
C. A MIX OF EQUITIES AND GILTS.
d. a spread of UK equities, gilts, corporate bonds and property.
A client has an investment portfolio of £250,000. Their main time horizon is 15 years but they also have a secondary time horizon of 2 years relating ro a planned capital withdrawal of £25,000 which is currently held in cash. In considering how to benchmark their portfolio , which approach would be most appropriate?
a. they should not any benchmark as the time horizons are too far apart.
b. the entire portfolio should be benchmarked to a 2-year time horizon.
C. 90% OF THE PORTFOLIO SHOULD BE BENCHMARKED TO A 15 YEAR TIME HORIZON.
d. the entire portfolio should be benchmarked to a 15-year time horizon.
When agreeing the benchmark for an investment portfolio with a client, it is important that the chosen benchmark
a. is always the lowest risk for the available choices.
b. is constructed using modern portfolio theory.
C. HAS THE SAME MIX OF ASSETS AS THE PORTFOLIO.
d. is positively correlated with portfolio's underlying assets.
The relationship between Total Expense Ratios (TER) and Portfolio Turnover Ratios (PTRs) can be best described as
a. the TER includes the costs of all transactions and increases proportionately to the PTR.
B. THE TER DOES NOT INCLUDE DEALING COSTS AND IS INDEPENDENT OF THE PTR.
c. the TER includes the dealing costs for the previous 12 months only and may not accurately reflect the current PTR.
d. all TERs must include a prescribed PTR to enable investors to compare costs of all funds.
When constructing a portfolio for a UK resident basic rate taxpayer who requires an income, the most tax efficient solution would be achieved by
a. only investing in offshore products.
B. HOLDING FIXED-INTERST FUNDS WITHIN A STOCKS AND SHARES ISA.
c. purchasing national savings & investments income bonds.
d. holding high-yielding equities within a stocks and shares ISA.
Fund X's annual management charge is 1.5%, Fund Y's is 1.25%. Their Total Expense Ratios (TERs) are 2% and 2.25% respectively. What is the most likely reason for the difference in TERs?
a. there are higher management fees in fund y.
b.there is a higher proportion of gilts in fund y.
C. FUND Y HAS HIGHER TRUSTEE, AUDIT AND LEGAL FEES.
d. fund y pays a higher level of trail commision.
Brian and John each have funds with simmilar underlying holdings. Why does Brian pay significantly more in management charges than John?
a. brian is exposed to UK equities whereas John is exposed to overseas equities.
b. brian is relatively risk averse whereas John is relatively adventurous.
C. ONLY JOHN HAS HOLDINGS IN INDEX TRACKING FUNDS.
d. only john benefits from pound cost averaging.
A financial adviser is researching ethical funds for a client who has expressed a desire to avoid companies that manufacture armaments. As part of his fund selection criteria in order to meet the client's requirements the adviser will consider that
A. SCREEN ON A NEGATIVE BASIS.
b. screen on a positive basis.
c. operate a thematic approach.
d. operate a positive engagement process.
What is the main advantage of investing in an inhouse fetteredfund of funds compared to unfettered fund of funds?
a. the investment returns are more likely to be higher.
B. THE MANAGEMENT CHARGES ARE LIKELY TO BE LOWER.
c. the investment choice is likely to be wider.
d. the volatility will be lower.
Pauline has agreed that her investment portfolio should be constructed in accordance with the APCIMS Growth Portfolio Benchmark. Her discretionary fund manager has decided that owing to current economic conditions, he will deviate from the prescribed asset allocation model. His decision is an example of
a. strategic asset allocation.
B. TACTICAL ASSET ALLOCATION.
c. optimisation.
d. partial replication.
Two fund portfolios were constructed. Portfolio X has a higher fund management charge than Portfolio Y and Portfolio X has a lower total expense ratio than portfolio Y. This means that
a. portfolio x is performing better than portfolio y.
b. portfolio x is more volatile than portfolio y.
C. PORTFOLIO Y WILL NEED TO PERFORM BETTER THAN PORTFOLIO X TO MATCH THE RETURN.
d. portfolio y will underperform portfolio x unless its charging structure is amended.