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RO2 keys > Mocks > Flashcards

Mocks Flashcards

1
Q

Modified duration of a bond

A

Measure on approximating how much the price of a bond could decline with an increase in interest rates.

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2
Q

What collective investment offers a discount to the net asset value?

A

Investment trust

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3
Q

Downside risk

A

Risk of price declining

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4
Q

Junior ISA max. age

A

18

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5
Q

Fixed interest securities

A

Loans to government or companies

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6
Q

Reinvestment risk

A

When fixed rate expires then will not be a comparable return on reinvestment

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7
Q

Void risk on a property

A

Risk of leaving property vacant as unable to find a tenant

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8
Q

SDLT on rent received rate and min. value

A

1% of rental excess above £125k for resi.

1% of rental excess above £150k for resi. Then 2% above £5m

E.g. rent of £2,00pm x 12 x 5yr tenancy = £15,000 so would be taxed on £25k if resi.

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9
Q

Hard commodity and soft commodity

A

Hard undergoes an extraction process

Soft is typically grown rather than mined

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10
Q

Disadvantage to globalisation

A

Political landscape is likely to mirror its economic prospects

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11
Q

Uk capital account

A

Deals with investments and loan in and out of the UK

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12
Q

Event risk

A

A natural disaster

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13
Q

Net asset value

A

Value of all of the shares added together is equal to the value of the assets held

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14
Q

Information association

A

Determine sectors within funds

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15
Q

Index tracking fund:
Full replication
Stratified sampling
Optimisation/synthetic

A

Full replication - match index as best as possible

Stratified sampling - hold sample of funds within index

Optimisation/synthetic - use computerised system to buy and sell shares

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16
Q

4 diversification rules of a UCIT

A

No more than 10% in one fund

No more than 4 companies have max share of 10%

Max. Of 5% there after

Min. Number of shares possible is therefore 16

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17
Q

2 Expemptions of UCIT rules

A

If a tracker fund the max of 20% in most cases. 35% in extreme cases.

Lower limit of 6 securities of fund for gov. bonds

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18
Q

Is gearing allowed on a permanent basis within a UCIT?

A

No, only temporary

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19
Q

Gearing limits for UCIT, non-UCIT, QIS

A

UCIT - Max. Of 10% and non-permenant
Non-UCIT - max. Of 10%
QIS - Max. Of 100% of NAV

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20
Q

Unit trust

A

Trust manager buys and sells bonds or shares.

Protected by the trustees and legal owner of assets

Fund split into units

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21
Q

How to remove a manager within a unit trust

A

Majority unit holder vote

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22
Q

How to calculate CGT if takes income from basic to higher tax bracket?

A

Use up basic income tax bracket and tax at 10% then 20% there after

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23
Q

Is a unit trust open ended?

A

Yes

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24
Q

Is stamp duty paid on a unit trust or OEIC?

A

No

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25
Q

OEIC

A

Open ended

Ran by a director

Protected by company law and depository

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26
Q

Annual CHT exemption for unit trust and OEIC?

A

£12,300

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27
Q

Fettered and unfettered OEIC or unit trust

A

Fettered - spread funds equally into funds

Unfettered - invest in funds and company funds

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28
Q

Which is typically more expensive fettered or unfettered?

A

Unfettered

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29
Q

EU savings directive does what?

A

Provides an auto exchange of information between members states to avoid tax evasion

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30
Q

What will taste any restrictions of the investment within an investment test company?

A

Articles of association

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31
Q

Investment trust company

A

PLC that invests in other companies

Close ended

Driven by supply and demand

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32
Q

How many people classified as a close company?

A

5 or fewer

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33
Q

Hurdle rate

A

Rate an investment must grow to repay each class of share at wind-up date

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34
Q

Conventional investment trust

A

One main class of equity shares with share holder entitled to all gains

Most have an indefinite term unless a Conventional limited life trust

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35
Q

Conventional limited life trust

A

Conventional investment trust but on maturity investors vote whether to wind-up and NAV is distributed

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36
Q

Split capital investment trust

A

Multiple classes of shares, entitled to different returns with different priorities on wind-up.

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37
Q

Where are hurdle rates calculated and advertised?

A

Association of investment trust companies monthly information service

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38
Q

Asset cover - meaning of 1, below 1 and above 1

A

1 - assets match money required to repay all share classes on wind-up

below 1 - assets less than liabilities

above 1 - assets more than liabilities

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39
Q

Split-Capital shares

A

Give entitlement to income and capital

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40
Q

Warrant within an investment trust company

A

Right to buy shares at s fixed price at s pre-determined date

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41
Q

What effect does warrants have on an investment trust company?

A

Dilute the NAV

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42
Q

Zero dividend preference shares

A

Fixed redemption date of no more than 10yrs

No income entitlement

Preferential rights over capital distribution on wind-up

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43
Q

What does 100 and 130 mean regarding hearing

A

100 is no gearing

130 is 30% gearing

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44
Q

Non-profit investment

A

Providing premiums are paid a set figure will be received on end date

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45
Q

With profit investment

A

Premiums are paid and bonuses are added to the sum assured which is received at end date but no guarantee bonuses received will take investment to expected return

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46
Q

Bonuses within a with profit policy

A

Annual, terminal, special

47
Q

Low cost with profit policy

A

Lower sun assured and give element of life policy with LTA

48
Q

Low start, low cost with-profits policy

A

Lower sun assured and life policy on DTA basis

49
Q

Unitised with profits based investment

A

Various investments expressed as units, where unit price cannot decrease

50
Q

Can a unitised with profits based investment value drop?

A

No

51
Q

Difference between fixed unit pricing and variable unit pricing within a Unitised with profits based investment

A

Fixed - price remains the same

Variable - value increases gradually over time

52
Q

What happens when an investment fund is closed?

A

Can no longer accept new money

53
Q

Pound costing average

A

Spread investment over period of time investing more when price is lower

54
Q

Can funds be switched within a life assurance based investment without tax implications?

A

Yes

55
Q

Min. term and max. contribution per year in order to be classed as a qualifying policy

A

Min. term of 10yrs

Max. contribution of £3,600

Cannot be surrendered in first 10yrs or 3/4 of term if shorter than 10yrs

56
Q

What % can you take from a bond each year of your original investment without incurring a tax implication?

A

5% and this is cumulative

57
Q

Bond

A

Usually split up into segments of investment

Give an investment sum and this is returned at the end of the term

58
Q

Distribution bond

A

Capital and income is considered as one and reflected in unit price. Can only withdraw by selling units

Classed as a unit linked bond

Must have equity of 60% and yield of 110% min.

59
Q

Unit linked bonds

A

Typically open ended

Written as whole of life policies

Can be cashed in at any time

60
Q

Guaranteed equity and protected bonds

A

Protection on equity of 100% and 90% for protected bonds which is achieved by purchasing a zero coupon bond for another company

61
Q

Gross roll up of an offshore investment means what?

A

Suffers very little taxation

62
Q

Difference between onshore and offshore bond taxation

A

Only difference is no taxation within fund so do not benefit from 20% investor deduction on tax and is all paid at redemption

63
Q

Segmentation

A

Investment split into segments of same value

64
Q

Is there CGT or income tax on a endowment?

A

No income tax if a qualifying policy but always CGT unless already paid income tax

65
Q

Max. Premium into a friendly society

A

£25pm or £270 per year

66
Q

Exchange traded funds

A

Funds that track an index

67
Q

Property unit trust

A

Value of investment must match NAV

Able to buy shares in property related investments or property directly

68
Q

Insurance company property bond

A

Specialise in holding commercial property

Value directly relates to value of property held

Cannot borrow

69
Q

Property authorised investment definition and 3 fund rules

A

Tax treatment moved from fund to investor

Investor max share is 10%
Must be widely available
60% value in property assets and income from property assets

70
Q

Tax relief for EIS, SEIS, VCT

A

EIS - 30%
SEIS - 50%
VCT - 30%

71
Q

ISA transfer rules

A

Prev. yr can be transferred in parts but not current yr

Innovative finance ISA cannot be transferred between provider but can go cash ISA back to IF ISA

cash to cash ISA must be completed within 15 days but other 30days

72
Q

Child trust fund and JISA max. contribution

A

£9k per year

73
Q

If aged 16-18 what benefit do you have with an ISA

A

Can contribute to JISA £9k and £20k into other ISA tax free

74
Q

Is there tax on a Purchased life annuity’s income?

A

No

75
Q

Derivative

A

Agreement to purchase something at a set price at a set time in the future eg fuel

76
Q

Can you trade a derivative?

A

Yes

77
Q

Future on a derivative

A

Legal obligation to buy or sell

78
Q

Option on a derivative

A

Gives the buyer an options to buy or sell asset on fixed date

79
Q

What is an initial margin when referring to a derivative?

A

Deposit paid on an option or future

80
Q

Who is the short side and long side of a deal

A

Short side - seller
Long side - buyer

81
Q

Exchange delivery settlement price

A

Price paid on redemption of option or future buy buyer

82
Q

Call option
Put option

A

Call - gives option buyer right to buy
Put - gives option buyer right to sell

83
Q

Is cost of a call or put option considered for CGT?

A

Yes

84
Q

Structured product

A

Type of insurance bond that is tracked to an index but if funds goes down do not lose money, if go up wil give money but if go up a lot then will share profits with the fund

85
Q

Can a zero coupon bond be traded?

A

No

86
Q

What does COBS specify?

A

Reasonable steps must be taken to ensure suitable recommendations are made by obtaining information from a client

87
Q

What are client agreements?

A

Standard document that is tailored to clients needs

88
Q

3 main factors with a risk profile

A

Capacity for loss
Attitude to risk
Tolerance of risk

89
Q

Stochastic risk modelling

A

Measures range of possible returns from an investment over a period of time

90
Q

If an advisor generates their own portfolio then they need to establish what 3 things?

A

Process for selection, research and review

91
Q

Should something be recommended because it is tax efficient?

A

No, suitable then made tax efficient

92
Q

Which of attitude to risk and capacity for loss is subjective and fact?

A

Attitude to risk - subjective
Capacity for loss - fact

93
Q

Capital preservation

A

An investor who is risk averse seeking return equal to or slightly above inflation

94
Q

Total return investment

A

An investor seeking long term growth from gains and income

95
Q

The shortest time horizon means they are generally what kind of investor?

A

Capital preservation

96
Q

The longest time horizon means they are generally what kind of investor?

A

Total return so long term growth

97
Q

Theoretical approach

A

Going with mathematical analysis to measure risk reward relation ship to maximise return

98
Q

Pragmatic approach

A

Work on historical data favouring those with long term positive performance

99
Q

Portfolio optimisation

A

Plots portfolios creating efficient frontier so tries to return highest level of return for given level of risk

100
Q

Strategic asset allocation

A

Set asset allocation eg 60% shares 40% bond

101
Q

Tactical asset allocation

A

Strategic asset allocation but can very asset allocation within a range

102
Q

Information ratio

A

Compare portfolio performance to benchmark

103
Q

Sharpe ratio

A

Was returns good investment or result of excess risk

104
Q

Alpha

A

Good indication of stock selection

105
Q

Time weighted return

A

Measures performance of different fund managers

106
Q

Money weighted return

A

Meansure return on capital over a specified period

107
Q

Panel of takeover and mergers charge what?

A

£1 above £10k on purchases and sales

108
Q

Stamp duty and stamp duty reserve tax for shares for paperless and paper

A

Paper - Stamp duty - rounded to next £5

Paperless - stamp duty reserve tax - rounded to nearest penny

109
Q

Stamp duty land tax on rent

A

1% above £125k for resi.
1% above £150k for commercial

110
Q

SDLT on non resi. purchases

A

2% from £150k to £250k then same so 5% over this

111
Q

Bond taxation

A

Can withdraw income upto 5% per year free without income tax until money invested returned

Pay 20% tax within fund so income tax is 20% less

CGT is at usual rate

112
Q

Stratified sampling

A

Has sample of shares in index but chose which shares to hold

113
Q

Optimisation/synthetic

A

Computerised system picks shares within index

RO2 keys (13 decks)

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