Final Mock - Part 2

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Final Mock - Part 2

Question 101
Where funds are to be set aside to provide for the future financial maintenance of a disabled child, this can normally be achieved through the establishment of a legal document called a:

1 point

A. Codicil

B. Trust

C. Grant of representation

D. Power of attorney

Clear selection

Question 102
Which of the following is a factor that must be considered when constructing a portfolio?

1 point

A. Verification of the client's identity

B. The client's risk tolerance

C. The category of investment service required

D. Performance measurement

Clear selection

Question 103
Which of the following is a feature in Arbitrage Pricing Theory (APT)?

1 point

A. APT relies on identified factors being correlated

B. The variables of APT include real economic factors

C. The principal component of APT is the return on an index of all shares

D. APT is equivalent to a single factor Capital Asset Pricing Model

Clear selection

Question 104
Which of the following is an offence under the market abuse legislation?

1 point

A. A stockbroker dealing in a stock in which they have received price sensitive information

B. A stockbroker fuelling rumours of outstanding results for a small oil company to its clients

C. A private client buying outside normal market size with one broker and not telling their usual stockbroker about it

D. A private client telling their friends about a company that they think is going to be taken over

Clear selection

Question 105
Which of the following rules applying to financial intermediaries is directly underpinned by the principle of fiduciary responsibility?

1 point

A. Commission disclosure

B. Money laundering

C. Professional indemnity

D. Best execution

Clear selection

Question 106
What is the MAIN purpose of a power of attorney document?

1 point

A. It appoints someone to distribute the assets of a deceased person

B. It enables ownership of property to transfer from one person to another person

C. It allows one person to conduct specific transactions on behalf of another person

D. It entitles one trustee to override the demands of another trustee

Clear selection

Question 107
If a client wanted to make additional contributions to an occupational pension scheme, which of the following options would give him the greatest choice of provider and a say in how the funds are invested?

1 point

A. Non-contributory occupational scheme

B. Contributory occupational scheme

C. Freestanding Additional Voluntary Contributions

D. Additional Voluntary Contributions

Clear selection

Question 108
Units in a unit trust fund are sold by which of the following?

1 point

A. The trustee

B. The registrar

C. The manager

D. The depositary

Clear selection

Question 109
An investment manager believes that markets are inefficient and that he can obtain abnormal returns after transaction charges. Which investment style is he most likely to adopt?

1 point

A. Passive

B. Indexation

C. Active

D. Core-Satellite

Clear selection

Question 110
When giving financial advice on the subject of protection, why is it important to quantify a client's assets?

1 point

A. To determine whether the costs can be offset against tax liabilities

B. To establish what shortfall may arise if an insured event occurs

C. To ensure that the underwriters have sufficient information

D. To identify the client's appropriate risk profile

Clear selection

Question 111
When considering the money supply, money is accurately described as anything that is generally:

1 point

A. Convertible to sterling currency

B. Acceptable as a means of settling a debt

C. Sustainable in value over a defined period

D. Tradable and held outside of a bank or building society deposit

Clear selection

Question 112
What is a company's interest cover if its profit before interest and tax is £10 million and its interest payable is £2 million?

1 point

A. 3

B. 5

C. 8

D. 20

Clear selection

Question 113
What would a company's interest cover figure of 1.2 indicate?

1 point

A. Its interest expenses have increased by 1.2% over the last 12 months

B. Its interest expenses have increased by 20% over the last 12 months

C. Its ability to meet interest expenses is relatively strong

D. Its ability to meet interest expenses may be questionable

Clear selection

Question 114
A company's profit after tax is £2 million, it has four million ordinary shares in issue and its share price is 300p. What is its price earnings ratio?

1 point

A. 6

B. 15

C. 16.7

D. 50

Clear selection

Question 115
What is a company's price to book ratio if its share price is 300p, the NAV per share is 150p and the P/E ratio is 10?

1 point

A. 0.5

B. 2

C. 3

D. 45

Clear selection

Question 116
A firm's dividend yield is 5% and distributes $2 per share. What is the firm's P/E ratio if its earnings are $200m and total number of shares is 50m?

1 point

A. 5

B. 10

C. 15

D. 20

Clear selection

Question 117
When recommending an investment product to a client, what material information MUST the adviser disclose in order to satisfy the fiduciary relationship that exists between the two parties?

1 point

A. Only details which have been specifically requested by the client

B. Whatever is needed to produce a guaranteed return

C. Only details which are considered to affect the investment risk

D. Whatever is needed in order for the client to make an informed decision

Clear selection

Question 118
Mary sold a put option to John at a strike price of $50. On maturity, the market price was $45. Which of the following statements is true?

1 point

A. Mary has benefited

B. John has benefited

C. Neither has benefited

D. Both have benefited

Clear selection

Question 119
A put option is at break-even when:

1 point

A. The underlying share price is equal to the exercise price less the premium

B. The underlying share price is equal to the exercise price plus the premium

C. The underlying share price is equal to the exercise price

D. A put option is never at break-even

Clear selection

Question 120
Calculate the geometric mean for the following data set: 3%, 7%, -2%, 9%, -1%

1 point

A. 3.11%

B. 3.22%

C. 3.33%

D. 3.44%

Clear selection

Question 121
An investor buys 6.5% p.a. Treasury Bond in September. How much will the next coupon payment be if the nominal value of the bond is $10,000?

1 point

A. $1,300

B. $650

C. $325

D. $162.50

Clear selection

Question 122
Tools used by regulators that are designed to identify, assess and measure risk are called:

1 point

A. Diagnostic tools

B. Monitoring tools

C. Preventative tools

D. Remedial tools

Clear selection

Question 123
Corporation tax is a factor when considering investment as it can:

1 point

A. Block investment opportunities

B. Differ between countries

C. Be deferred indefinitely

D. Be subject to a different accounting period

Clear selection

Question 124
Which of the following statements is TRUE?

I. In the short term, firms only need to cover variable costs when deciding to produce units
II. In the short term, firms need to cover variable & fixed costs when deciding to produce units
III. Fixed costs are known as sunk costs in the long term
IV. Fixed costs are known as sunk costs in the short term

1 point

A. I & III

B. I & IV

C. II & III

D. II & IV

Clear selection

Question 125
What are the possible implications for investment performance of investing in an ethical fund?

1 point

A. The fund may be more volatile because of the increased exposure to smaller company holdings

B. Ethical funds invest primarily in large companies producing lower total returns

C. There are no suitable benchmarks for the client to measure performance against

D. Total returns are likely to be higher due to the increased level of diversification in ethical funds

Clear selection

Question 126
There are international standards on how investment returns should be calculated and presented. What are these known as?

1 point

A. Global investors performance standards

B. Global investment performance standards

C. Global investment performing standards

D. Global investment performance statistics

Clear selection

Question 127
Which of the following is not a type of market index?

1 point

A. Price-weighted index

B. Market value-weighted index

C. Capital-weighted index

D. Equal-weighted index

Clear selection

Question 128
Which ONE of the following statements relating to defined contribution company pension schemes is TRUE?

1 point

A. They place the risk and uncertainties of financing retirement with the employee

B. Many companies have withdrawn these types of pension schemes

C. Liabilities and expenses associated with these schemes have significantly increased

D. Companies with these schemes are reducing benefits and deferring retirement age

Clear selection

Question 129
What is the disadvantage of a defined contribution pension scheme?

1 point

A. In their final years of working, an employee may not be earning as much as when they were at peak earning power

B. The actual income the employee will receive in retirement will not be known in advance of retiring

C. There are no employer contributions into the scheme

D. The long-term security of the pension fund

Clear selection

Question 130
When taking out term assurance, what is the MAXIMUM period of cover that a client is normally able to select?

1 point

A. A period up to 40 years but cover must end before their 70th birthday

B. A period up to 40 years but cover must end before their 50th birthday

C. A period up to 20 years but cover must end before their 70th birthday

D. A period up to 20 years but cover must end before their 50th birthday

Clear selection

Question 131
What is fiat currency based on?

1 point

A. Gold

B. Faith

C. GDP of the economy

D. Central Bank credit-worthiness

Clear selection

Question 132
In economics, what will cause the supply curve to shift to the right?

1 point

A. More efficient production process

B. Increased production costs

C. Scarcity of raw materials

D. Less competition from other firms

Clear selection

Question 133
Which of the following is a characteristic of perfect competition?

1 point

A. Barriers to entry

B. Supernormal profits

C. An infinite number of firms

D. A wide variety of products

Clear selection

Question 134
By what percentage will demand fall if income drops by 2% and the income elasticity of demand for the product is 3?

1 point

A. 2%

B. 3%

C. 4%

D. 6%

Clear selection

Question 135
Short-term promissory notes that are issued by a company that is not a bank are called:

1 point

A. Certificates of deposit

B. Commercial paper

C. Floating-rate notes

D. Treasury bills

Clear selection

Question 136
Which one of the following is a portfolio of retail collective investment schemes which seek to harness what is considered the best investment management talent available within a diversified portfolio?

1 point

A. Hedge fund

B. Fund supermarket

C. Fund of funds

D. Venture capital fund

Clear selection

Question 137
Of the following, which is not a strategy used by a hedge fund following an event-driven strategy?

1 point

A. Special situations

B. Distressed securities

C. Merger arbitrage

D. Equity arbitrage

Clear selection

Question 138
Which ONE of the following is NOT an example of a fiduciary relationship?

1 point

A. Agent and principal

B. Stockbroker and client

C. Trustee and beneficiaries

D. Banker and regulator

Clear selection

Question 139
Which ONE of the following is NOT one of the main fiduciary duties placed on a financial adviser?

1 point

A. To disclose material information

B. To detect money laundering activity

C. To act in the client's best interest

D. To avoid potential conflicts of interest

Clear selection

Question 140
Dave holds a number of corporate bonds and Ian holds a number of gilts. Which ONE of the following types of risk will typically be greater in respect of Dave's holdings?

1 point

A. Credit risk

B. Market risk

C. Price risk

D. Inflation risk

Clear selection

Question 141
Two sets of data are positively correlated. If one set of data rises in value, what will happen to the other set?

1 point

A. Rises

B. Falls

C. No change

D. Rises to begin with then falls

Clear selection

Question 142
Which of the following gives the right, but not the obligation, to sell individual equity at a specified date for a given price?

1 point

A. Future

B. Forward contract

C. Put option

D. Call option

Clear selection

Question 143
If $2,200 is invested for four years with interest at the rate of 6% p.a., compounded half-yearly, what will be the value at the end of this period?

1 point

A. $2,696.55

B. $2,777.45

C. $2,786.89

D. $2,860.77

Clear selection

Question 144
Mary wants to ensure that her investments of $15,000 is not invested in armaments. John wants to ensure that his $15,000 is invested in wind and solar projects. Which of the following statements are correct:

I. Mary is interested in ethical investing
II. John is interested in socially-responsible investment
III. Mary is flexible in her approach
IV. John is flexible in his approach

1 point

A. I & II only

B. I, II & III only

C. I, II & IV only

D. I, II, III, IV

Clear selection

Question 145
Based on the principles of Modern Portfolio Theory, an equity fund will operate on the 'efficient frontier' if:

1 point

A. The optimum level of systematic risk is obtained

B. The best level of diversification is achieved

C. The fund's alpha value is negative

D. The fund's beta value is one or more

Clear selection

Question 146
What is the impact on cash deposits of the time value of money in the current economic environment?

1 point

A. The purchasing power of the deposit decreases over time

B. The purchasing power of the deposit increases in line with interest rates

C. The present value of the deposit will increase proportionally in line with inflation

D. The present value of the deposit will be maintained as long as interest is compounded

Clear selection

Question 147
The only resources available in varying quantities to the firm in the short run are:

1 point

A. Labour, raw materials and equipment

B. Labour and raw materials only

C. Labour only

D. Raw materials only

Clear selection

Question 148
A consumer purchases a designated investment and the firm provides the consumer with detailed cancellation rights over the telephone, immediately after the purchase. How has the firm contravened the rules?

1 point

A. Designated investments require notice of cancellation rights to be signed by the customer

B. Cancellation rights must be given in writing

C. Consumers must be informed of cancellation rights before a purchase is confirmed in all cases

D. Consumers must receive cancellation rights in writing before identification checks are undertaken

Clear selection

Question 149
The short run marginal cost is:

1 point

A. The cost of increasing production by one additional unit

B. The cost of decreasing production by one additional unit

C. The cost of one additional unit of labour

D. The cost of one additional unit of raw materials

Clear selection

Question 150
Why is a time weighted return (TWR) preferred to a money weighted return (MWR) when evaluating performance?

1 point

A. TWR only requires portfolio values at the start and end of the investment period along with dates and size of each cash flow

B. TWR eliminates the timing effect of cash flows into and out of the fund

C. TWR measures the fund growth resulting from both the underlying performance of the portfolio and the size and timing of cash flows into and out of the fund

D. TWR calculates the risk adjusted return per unit of risk

Clear selection

Question 151
Bond portfolio X exclusively contains relatively long-dated stock whereas Bond portfolio Y operates a laddering strategy. This means that Bond X is likely to:

1 point

A. Generate higher yields

B. Present less of a credit risk

C. Be more sensitive to interest rate changes

D. Represent a more diversified approach

Clear selection

Question 152
If the real annual returns of a UK equity investment are normally distributed around the mean return of 8% with a standard deviation of 4.5%, approximately two-thirds of the returns recorded will be within what range?

1 point

A. -5.5% and 21.5%

B. -1% and 17%

C. 3.5% and 12.5%

D. 5.75% and 10.25%

Clear selection

Question 153
Which MAIN class of financial asset is normally considered to be the LEAST liquid?

1 point

A. Equities

B. Corporate bonds

C. Government bonds

D. Property

Clear selection

Question 154
Which of the following is NOT counted as part of the Current Account Balance?

1 point

A. Imported and exported goods

B. Dividends on UK holdings of overseas assets

C. Long term capital flows

D. Interest on UK holdings of overseas assets

Clear selection

Question 155
John is worried that he will be unable to work due to a heart attack. Which of the following would enable him to claim if he had a severe heart attack?

1 point

A. Critical Illness cover

B. Permanent Health Insurance

C. Mortgage Protection

D. Accident, Sickness & Unemployment cover

Clear selection

Question 156
Which of the following types of investment incurs a liability for capital gains tax once sold?

1 point

A. Classic car

B. Government bonds

C. Units in unit trusts

D. Primary residence

Clear selection

Question 157
A function of the Monetary Policy Committee is to:

1 point

A. Attempt to control inflation by setting the base rate

B. Intervene in the financial markets to control money supply

C. Maintain confidence in the UK financial system

D. Promote public understanding of inflation

Clear selection

Question 158
Four bond portfolios each hold a variety of stock. Which one of them is BEST described as operating a barbell strategy?

1 point

A. Portfolio A, which consists solely of bills maturing in one year plus bonds maturing in 25 and 30 years

B. Portfolio B, which consists solely of bills maturing in six months plus bonds maturing in 5, 10, 15 and 20 years

C. Portfolio C, which consists solely of bonds maturing in 1, 3 and 5 years

D. Portfolio D, which consists solely of bonds maturing in 20, 25 and 30 years

Clear selection

Question 159
A company's Market Value Added equates to the market assessment of the present value of the company's future:

1 point

A. Dividend distributions

B. Economic value added

C. Capital costs

D. Gross profits

Clear selection

Question 160
Using Modern Portfolio Theory to create a two-stock portfolio, which of the following is TRUE?

1 point

A. The lower the correlation of stock returns, the greater the portfolio's diversification

B. The higher the correlation of stock returns, the greater the portfolio's diversification

C. The higher the correlation of stock returns, the lower the level of total risk associated with any given level of expected return

D. The lower the correlation of stock returns, the higher the level of total risk associated with any given level of expected return

Clear selection

Question 161
In a two-stock portfolio which of the following correlations would normally offer the greatest level of diversification?

1 point

A. +0.8

B. +0.6

C. -0.4

D. -0.7

Clear selection

Question 162
One of the statutory objectives of the UK's Financial Conduct Authority is to:

1 point

A. Encourage market competition

B. Reduce financial crime

C. Ensure products and services represent value for money

D. Liaise with financial services regulators from other countries

Clear selection

Question 163
How do spot exchange contracts differ from forward exchange contracts?

1 point

A. On the spot market, currencies are not quoted in terms of each other, unlike the forward market

B. On the spot market, the base currency is always GBP, unlike on the forward market

C. Forward contracts are settled on a pre-determined future date, 3 or more business days after the deal date

D. They do not differ. On both markets the delivery date is 2 days after the deal date

Clear selection

Question 164
One of the fundamental aims of a traditional hedge fund is to minimise which type of investment-related risk?

1 point

A. Inflation risk

B. Issuer risk

C. Market risk

D. Liquidity risk

Clear selection

Question 165
What lump sum must someone aged 35 invest today given an assumed annual growth rate of 7% if they are to accrue a lump sum of £450,000 at the age of 65?

1 point

A. £14,018

B. £59,115

C. £64,285

D. £420,560

Clear selection

Question 166
After moving the dirty money around through transfers between unknown offshore accounts and buying and selling of securities and financial instruments on stock exchanges and over-the-counter markets, this stage of money laundering is referred to:

1 point

A. Placement

B. Layering

C. Integration

D. All of the above

Clear selection

Question 167
A client has become incapable of understanding the information sent by their adviser and hence the adviser now cannot sign off on suitability as per an annual financial review. What should they do about the investment portfolio they are managing?

1 point

A. Continue to manage the portfolio

B. Continue to take the client's instruction

C. Take instructions from nearest family member

D. Take no action until an attorney is appointed

Clear selection

Question 168
Which of the following arrangements might be used by a firm to avoid a conflict of interest?

1 point

A. Disclosure

B. Financial promotions

C. Know your customer

D. Suitability

Clear selection

Question 169
Under the Efficient Market Hypothesis, a market is unlikely to operate as a 'strong-form efficient market' due to the existence of:

1 point

A. Insider dealing rules

B. Money laundering regulations

C. Best execution procedures

D. Data protection rules

Clear selection

Question 170
What factor is least important when assessing a defined benefit pension?

1 point

A. Age at which benefits can be taken

B. Expected amount payable

C. Investment performance of the fund

D. Lump sum available at retirement

Clear selection

Question 171
An investor is receiving half-yearly interest of £90 on his holding of £3,000 Treasury 6% Stock which is currently valued at £3,600. What is the flat yield?

1 point

A. 2.5%

B. 3%

C. 5%

D. 6%

Clear selection

Question 172
What is the principle behind the regulatory requirement to categorise clients?

1 point

A. To determine the risk tolerance of a client

B. To establish the level of regulatory protection a client is to be afforded

C. To ensure that the financial adviser knows enough about the client to prevent money laundering

D. To establish the level of product disclosure required in a Key Features Document

Clear selection

Question 173
Which of the following statements is TRUE in relation to options?

1 point

A. The buyer of a call has the right to sell an asset

B. The buyer of a put has the right to buy or sell an asset

C. The seller of a call has the right to sell an asset

D. The buyer of a call has the right to buy an asset

Clear selection

Question 174
Which of the following removes the impact of cash flows in and out of a portfolio when measuring performance?

1 point

A. Total return

B. Time-weighted rate of return

C. Holding period return

D. Money-weighted rate of return

Clear selection

Question 175
Which of these correlation coefficients indicates the weakest relationship between two assets?

1 point

A. +1

B. +0.2

C. −0.5

D. −1

Clear selection

Question 176
Insider dealing rules apply to which of the following securities?

1 point

A. Aluminium futures

B. OEIC shares

C. Bond futures

D. Unit trust units

Clear selection

Question 177
If a government decides to deal with a current account deficit by allowing the value of its currency to decline against other currencies, what will be the impact on a company?

1 point

A. It will reduce its costs for importing raw materials

B. The cost of services it obtains from abroad will be cheaper

C. Profits earned in other currencies will be worth less when translated into sterling

D. Its goods will be more competitive in overseas markets

Clear selection

Question 178
Fund ABC was valued at $10.5 million at the start of the year and $11.8 million at the end of the year. The asset allocation was 60% equities and 40% bonds. If the fund's benchmark assumes 50/50 allocation and, over this period, equities achieved +7% and bonds achieved +5%, then the fund will have:

1 point

A. Underperformed the benchmark by $649,000

B. Underperformed the benchmark by $670,000

C. Outperformed the benchmark by $649,000

D. Outperformed the benchmark by $670,000

Clear selection

Question 179
Which of the following is an indication of a successful active fund manager AND a well-diversified portfolio?

1 point

A. Low Treynor ratio

B. High standard deviation

C. High Sharpe ratio

D. Low information ratio

Clear selection

Question 180
The ongoing charges figures and the total expense ratio is used in conjunction with which of the following?

1 point

A. Analysis of company accounts

B. Comparison of collective investment schemes

C. Selection of a discretionary investment management provider

D. Performance measurement of a portfolio

Clear selection

Question 181
An investor buys a call option for 10p on ABC ordinary shares exercisable at 100p in three months' time. The underlying share price is 120p. The option is described as which of the following?

1 point

A. At break-even

B. At-the-money

C. In-the-money

D. Out-of-the-money

Clear selection

Question 182
Which of the following is a characteristic of whole-of-life assurance?

1 point

A. It can be arranged as level, increasing or decreasing cover

B. It is a liquid source of investment

C. It can help with the costs of long-term care

D. It combines an element of insurance with a savings plan

Clear selection

Question 183
A stock has a beta of 1.2 and is being traded in market that is expected to grow by 3%. What is the stock's CAPM considering that Treasury Bills have a return of 2%?

1 point

A. 1.2

B. 2.2

C. 3.2

D. 4.2

Clear selection

Question 184
When an investor believes that something will not occur in the future because it has occurred many times in the past, this is called:

1 point

A. Herding

B. Overconfidence

C. Representativeness

D. Gambler's fallacy

Clear selection

Question 185
Which of the agencies rates the performance of fund managers?

1 point

A. Moody's

B. Morningstar

C. Lipper

D. Citywire

Clear selection

Question 186
Which of the following correlation coefficients indicates the lowest level of diversification?

1 point

A. +0.7

B. +0.5

C. -0.3

D. -0.6

Clear selection

Question 187
Which one of the following ratios uses beta to calculate risk?

I. Sharpe Ratio
II. Sortino Ratio
III. Treynor Ratio
IV. CAPM

1 point

A. I & II

B. II & III

C. III & IV

D. I & IV

Clear selection

Question 188
In a trust, the remainderman receives the capital after:

1 point

A. The death of the settlor

B. The death of the trustee

C. The death of the beneficiary

D. Any of the above

Clear selection

Question 189
Which of the following is used as an indicator for broad money in the EU?

1 point

A. M0

B. M1

C. M2

D. M3

Clear selection

Question 190
For a bond that is trading at a discount to its par value, which one of the following statements would be TRUE?

1 point

A. GRY < Running yield

B. GRY > Running yield

C. GRY = Running yield

D. GRY = Coupon / Price × 100

Clear selection

Question 191
Which of the following is true of long-term care cover?

1 point

A. Covers medical costs after 70

B. Tax is paid on proceeds paid-out

C. Proceeds are paid as a recurring income

D. Premiums tend to be cheap

Clear selection

Question 192
Which of the following is true of Negative Interest Rate Policy:

I. It encourages people and businesses to save during crisis.
II. It encourages people and businesses to spend during crisis.
III. It is usually accompanied with contractionary fiscal policy.
IV. It usually accompanied with expansionary fiscal policy.

1 point

A. I & III

B. I & IV

C. II & III

D. II & IV

Clear selection

Question 193
Which of the following influence a client's attitude to risk?

1 point

A. Timescale

B. Stage of life

C. Commitments

D. Comfort with risk

Clear selection

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