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1

David invests in a fixed rate bank account when interest rates are high. At the end of the term, interest rates have fallen, and he is unable to secure a similar rate. Specifically, this type of risk is known as:

Select one:

a. liquidity risk.

b. market risk.

c. capital risk.

d. reinvestment risk.

 

 

d. reinvestment risk.

2

Sandra lives in the UK and is considering investing some of her cash deposits into an offshore account. She should be aware that:

Select one:

a. there is no additional risk of investing in offshore accounts since the Financial Services Compensation Scheme would protect her regardless of where she places her money.

b. most foreign countries have the same level of supervisory structure as the UK and institutional collapse may be less probable.

c. currencies regarded as strong may not rise enough to compensate for their lower interest rates.

d. high rates of interest can be achieved and they are usually offered by low inflation countries with potentially strengthening currencies.

 

 

c. currencies regarded as strong may not rise enough to compensate for their lower interest rates.

3

Which combination of inflation and interest rates is of the most benefit to savers in the final year of a cash savings plan?

Select one:

a. High inflation and low interest rates.

b. High inflation and high interest rates.

c. Low inflation and low interest rates.

d. Low inflation and high interest rates.

 

 

d. Low inflation and high interest rates.

4

John's investment is no risk, sold at a discount to its par value and has a term of 3 months. What type of investment does he have?

Select one:

a. Deposit account.

b. Treasury bill.

c. Permanent interest bearing share.

d. Certificate of deposit.

 

 

b. Treasury bill.

5

If Sheila buys a gilt four days before the next interest payment date, usually she will:

Select one:

a. receive the impending interest payment and will pay a lower price than the clean price.

b. not receive the impending interest payment and will receive 'cum dividend'.

c. receive the impending interest payment and will pay a higher price than the clean price.

d. not receive the impending interest payment and will pay a dirty price.

 

 

b. not receive the impending interest payment and will receive 'cum dividend'.

6

Samir's investment has just matured where the performance was linked to the value of an equity index. Samir's investment was most likely to be a:

Select one:

a. NS&I guaranteed growth bond.

b. structured deposit.

c. zero coupon bond.

d. corporate bond.

 

 

b. structured deposit.

7

Barry has £50,000 deposited with ABC bank and £100,000 deposited with XYZ bank, both of which are based in London. What is the total amount he would receive under the FSCS in the event of default?

Select one:

a. £135,000.

b. £125,000.

c. £150,000.

d. £85,000.

 

 

a. £135,000.

8

Simon contributes £30 per month into a NS&I Direct ISA. This means that he is:

Select one:

a. unable to contribute to a stocks and shares ISA.

b. able to invest up to an additional £20,000 into a stocks and shares ISA.

c. able to invest up to an additional £19,640 into it in the current tax year.

d. unable to make any further subscription to his NS&I Direct ISA this tax year.

 

 

c. able to invest up to an additional £19,640 into it in the current tax year.

9

Anil buys a corporate bond and pays a clean price of £113.60 for a £100 nominal value of stock paying 7% coupon. Assuming it has exactly four years to run to maturity and had an original term of eight years, the gross redemption yield will be:

Select one:

a. 3.17%.

b. 2.76%.

c. 2.69%.

d. 3.88%.

 

a. 3.17%.

 

Yield = 7/113.60 = 6.16%

GRY = 6.16 - ((13.6/4)/113.40) * 100 = 3.17%

10

Suresh is considering the purchase of a UK Government gilt. The price of the gilt is published daily in the Financial Times but this will not reflect the actual price he could buy it at, because the price quoted is:

Select one:

a. ex-dividend.

b. the average price for the gilt on the previous day. 

c. the price for selling gilts, not buying them.

d. the clean price.

 

 

d. the clean price.

11

George has £125,000 on deposit with a bank based in the Isle of Man, £150,000 with ABC Bank in the UK and £95,000 on deposit in Spain with a Spanish subsidiary of ABC Bank. Under the Financial Services Compensation Scheme, what would George receive if each of the three banks were to default?

You must select ALL the correct options to gain the mark:

a. £85,000 for the Isle of Man account.

b. £95,000 for the Spanish subsidiary of ABC Bank.

c. £85,000 for the Spanish subsidiary of ABC Bank.

d. £85,000 in total for the ABC Bank account and the Spanish subsidiary of ABC Bank.

e. £85,000 for the ABC Bank account.

 

 

c. £85,000 for the Spanish subsidiary of ABC Bank.

 

e. £85,000 for the ABC Bank account.

chapter reference 1B2A

12

Mavis has her savings in a building society instant access account. Which potential risks is she most likely to face?

You must select ALL the correct options to gain the mark:

a. Default risk.

b. Inflation risk.

c. Liquidity risk.

d. Event risk.

e. Interest rate risk.

 

 

a. Default risk.

 

b. Inflation risk.

 

e. Interest rate risk.

 

chapter reference 1B2

13

Tom is aged 16. His mother gives him £5,000 allowing him to invest in his first cash ISA. What is the maximum rate of interest which he can receive from the ISA in the full tax year to ensure no tax becomes payable?

Select one:

a. 2.25%.

b. 2%.

c. 1.25%.

d. 1%.

 

 

b. 2%.

 

chapter reference 1B3E

14

Mya is considering her first direct purchase of a corporate bond. When deciding which bond to purchase she should keep in mind that:

You must select ALL the correct options to gain the mark:

a. the redemption yield allows Mya to compare bonds on a common basis.

b. if the coupon is above current interest rates and the issuer has a strong credit rating, a bond will trade above par.

c. future interest rate falls will typically cause bond prices to rise.

d. where the interest yield is less than the redemption yield there will be a capital loss if she holds the bond until its redemption date.

e. future interest rate rises will typically cause bond prices to rise.

 

a. the redemption yield allows Mya to compare bonds on a common basis.

b. if the coupon is above current interest rates and the issuer has a strong credit rating, a bond will trade above par.

c. future interest rate falls will typically cause bond prices to rise.

chapter reference 1C4

15

If Jenny re-invests £7,500 in an NS&I Guaranteed Income Bond, she should be aware that:

Select one:

a. the money is tied up for at least three years.

b. interest is paid gross, either quarterly or monthly.

c. it pays a fixed rate of interest.

d. the minimum renewable amount she can re-invested is £1,000.

 

 

c. it pays a fixed rate of interest.

 

chapter reference 1B4E

16

Treasury bills differ to certificates of deposit due to the fact that:

Select one:

a. only certificates of deposit are bought at a discount to their par value.

b. they belong to different asset classes.

c. Treasury bills are backed by the Government.

d. only fund managers can purchase Treasury bills.

 

 

c. Treasury bills are backed by the Government.

 

chapter reference 1B5B

17

ZYX plc have decided to issue debentures. A potential investor should know that:

You must select ALL the correct options to gain the mark:

a. ZYX plc will pay a floating coupon on the debentures.

b. if ZYX plc secure the debentures on a floating charge, this will have a lower priority than a fixed charge in the event of the company being wound up.

c. ZYX plc can secure the debentures on a general charge over any of the company's assets.

d. there will be no redemption date attached to the debentures.

e. ZYX plc can secure the debentures on the value of land owned by the company.

b. if ZYX plc secure the debentures on a floating charge, this will have a lower priority than a fixed charge in the event of the company being wound up.

 

c. ZYX plc can secure the debentures on a general charge over any of the company's assets.

 

e. ZYX plc can secure the debentures on the value of land owned by the company.

chapter reference 1C8B

18

Gabby owns a conventional gilt while Cilla owns a corporate bond. The investments are different because:

You must select ALL the correct options to gain the mark:

a. only Gabby's gilt will be exempt from capital gains tax.

b. the yield on Gabby's gilt will generally be lower than Cilla's corporate bond.

c. the spread between the buying and selling price is likely to be wider for Cilla's corporate bond.

d. Gabby's gilt will typically be more volatile than Cilla's corporate bond.

e. Cilla's corporate bond is generally deemed to have a higher risk than Gabby's gilt.

 

b. the yield on Gabby's gilt will generally be lower than Cilla's corporate bond.

c. the spread between the buying and selling price is likely to be wider for Cilla's corporate bond.

e. Cilla's corporate bond is generally deemed to have a higher risk than Gabby's gilt.

chapter reference 1C7/C8

19

A national supermarket chain is issuing corporate bonds, as is a much smaller chain of convenience stores. When compared, it is more likely that the supermarket will have the:

Select one:

a. lower credit rating and the yield of the convenience store chain will be higher.

b. higher credit rating and the yield of the convenience store chain will be lower.

c. lower credit rating and the yield of the convenience store chain will be lower.

d. higher credit rating and the yield of the convenience store chain will be higher.

 

 

d. higher credit rating and the yield of the convenience store chain will be higher.

chapter reference 1C5B

20

If a fund manager is only allowed to invest in investment grade bonds, he would be UNABLE to invest in a stock which is rated:

Select one:

a. Standard & Poor's BB+.

b. Moody's Baa 1.

c. Moody's Baa 3.

d. Standard & Poor's BBB+.

 

 

a. Standard & Poor's BB+.

chapter reference 1C5B

21

A fund manager is considering making direct investments into fixed-interest securities and corporate bonds. What characteristics of each should he be aware of?

Select one:

a. Yields on gilts are generally higher than on corporate bonds.

b. The spread between the buying and selling prices of a corporate bond is narrower than for gilts.

c. Corporate bonds will always trade below par whereas gilts tend to trade above par.

d. Corporate bonds are typically more volatile than gilts.

 

 

c. Corporate bonds will always trade below par whereas gilts tend to trade above par.

chapter reference 1C8

22

Simon is considering purchasing an index-linked gilt. He should be aware that:

You must select ALL the correct options to gain the mark:

a. the coupon and yields tend to be much lower than those applicable to conventional stock.

b. the full amount of interest received will be taxable, excluding any inflation uplift.

c. prospective redemption yields are currently quoted in the financial press assuming a 3% inflation rate.

d. both the interest payments and the capital repayment at redemption are adjusted in line with the changes in the Retail Prices Index.

e. if the Retail Prices Index falls the interest and capital payments will remain level.

f. a gilt issued during or after September 2005 increases payments by the Retail Prices Index figure applicable four months prior to each payment date.

 

 

a. the coupon and yields tend to be much lower than those applicable to conventional stock.

d. both the interest payments and the capital repayment at redemption are adjusted in line with the changes in the Retail Prices Index.

 

c. prospective redemption yields are currently quoted in the financial press assuming a 3% inflation rate.

 chapter reference 1C7B

23

ABC plc has raised finance by not going to a traditional lender. The security they have offered for the loan could be sold at any time, which means that ABC plc must have issued:

Select one:

a. permanent interest bearing shares.

b. commercial paper bills with security.

c. a fixed charge debenture.

d. a floating charge debenture.

 

 

d. a floating charge debenture.

chapter reference 1C8B

24

Gerald purchases a gilt 5 days before its interest payment date. He will:

Select one:

a. receive the next interest payment and will pay a price higher than the clean price.

b. not receive the next interest payment and will pay a price lower than the dirty price.

c. not receive the next interest payment and will pay a price lower than the clean price.

d. receive the next interest payment and will pay a price lower than the dirty price.

 

c. not receive the next interest payment and will pay a price lower than the clean price.

chapter reference 1C2C

25

Vincent is considering making an investment in index-linked gilts. He should be aware that the index-linking applies to:

Select one:

a. capital repayment at redemption only.

b. alternate interest payments and capital repayment at redemption.

c. interest payments only.

d. all interest payments and capital repayment at redemption.

 

 

d. all interest payments and capital repayment at redemption.

chapter reference 1C7B

26

Conditions that allow investors to buy bond income at almost any redemption period for much the same price would be reflected by a:

Select one:

a. flat yield curve.

b. stable yield curve.

c. normal yield curve.

d. reverse yield curve.

 

 

a. flat yield curve.

 chapter reference 1C6

27

Edith, 42, is looking for a savings account offered by National Savings & Investments. Her choice includes:

You must select ALL the correct options to gain the mark:

a. a direct saver account.

b. an investment guaranteed growth bond.

c. index-linked savings certificates.

d. an easy access savings account.

e. an investment account.

 

a. a direct saver account.

 

e. an investment account.

 

chapter reference 1B4

28

Vinesh is considering buying a corporate bond on the secondary market. The title of each bond will always provide him with information about the:

You must select ALL the correct options to gain the mark:

a. issue date.

b. coupon.

c. name of the first owner.

d. issuer's name.

e. maturity date.

 

b. coupon.

d. issuer's name.

e. maturity date.

chapter reference 1C1A

29

Spencer paid £7,500 for £10,000 nominal value of Treasury 4% 2029. How much interest will he receive from this stock every six months?

Select one:

a. £150.

b. £300.

c. £400.

d. £200.

 

d. £200.

 

chapter reference 1C1A

30

When compared with gilts, corporate bonds will typically:

You must select ALL the correct options to gain the mark:

a. be less volatile.

b. have a lower spread.

c. be less liquid in a market crisis.

d. have a higher risk.

e. have a higher yield.

 

 

c. be less liquid in a market crisis.

d. have a higher risk.

e. have a higher yield.

chapter reference 1C8

31

Santi is looking to make a deposit with a UK building society. A notice account differs from a term deposit account in that the notice account will typically:

Select one:

a. require savings to be deposited for a fixed term.

b. be based on the returns available from some stock market index.

c. allow greater access throughout the term of the savings.

d. have no penalties for instant access to the amount deposited.

 

 

c. allow greater access throughout the term of the savings.

chapter reference 1B3B

32

Treasury bills are designed to:

Select one:

a. fund long-term lending needs for the Treasury.

b. fund short-term lending needs of the Government.

c. make medium-risk products available to the market place.

d. fill product gaps for restricted advisers.

 

 

b. fund short-term lending needs of the Government.

chapter reference 1B5B

33

An investor pays a clean price of £114.60 for £100 nominal value of stock with a 5.5% coupon. Assuming the stock has exactly four years to run until maturity, what will the gross redemption yield be?

Select one:

a. 1.61%.

b. 4.8%.

c. 3.19%.

d. 3.65%.

 

 

Yield = 5.5/114.60 = 4.8%

GRY = 4.8 - ((14.60/4)/114.60) * 100 = 1.61%

chapter reference 1C4B

 

 

34

Graham has a gilt where the clean price is £95, the coupon is 5% and the time to redemption is 10 years. This means that the:

Select one:

a. redemption yield is 5.26%.

b. running yield is 4.75%.

c. running yield is 5%.

d. redemption yield is 5.79%.

 

 

d. redemption yield is 5.79%

chapter reference 1C4B.

35

Dan and Joyce have £200,000 in a joint UK deposit account, and £150,000 in a joint account with a bank in the USA. What compensation would they potentially receive under the Financial Services Compensation Scheme [FSCS] if both banks were to default?

Select one:

a. £350,000.

b. £170,000.

c. £200,000.

d. £150,000.

 

 

b. £170,000.

chapter reference 1A2A

36

Helen and Ricardo are both considering investing into NS&I Income Bonds. Helen has £20,000 to invest and Ricardo has £50,000. You would advise them that:

Select one:

a. interest is paid net of basic-rate income tax.

b. the interest they receive cannot be used against their respective personal savings allowances.

c. they will both receive the same rate of interest.

d. interest penalties apply if notice is not given for withdrawals.

 

 

c. they will both receive the same rate of interest.

chapter reference 1B4B

37

Alex is considering investing into a cash ISA. Which investments could meet his requirements?

You must select ALL the correct options to gain the mark:

a. Units in a unit trust investing in bonds and other fixed interest securities.

b. Shares in open-ended investment companies which are money market schemes.

c. Stakeholder cash deposit products.

d. Fixed rate accounts with a bank.

 

 

b. Shares in open-ended investment companies which are money market schemes.

c. Stakeholder cash deposit products.

 

d. Fixed rate accounts with a bank.

chapter reference 1B3E

38

An investor is considering four different types of bond which his stock broker has recommended. Which of them would be the LEAST volatile?

Select one:

a. Redeemable in 3 years, paying a coupon of 8%.

b. Redeemable in 3 years, paying a coupon of 3%.

c. Redeemable in 15 years, paying a coupon of 8%.

d. Redeemable in 15 years, paying a coupon of 3%.

 

 

a. Redeemable in 3 years, paying a coupon of 8%.

chapter reference 1C5D

 

39

Dwaine is planning to invest in a cash ISA. His options include:

You must select ALL the correct options to gain the mark:

a. stakeholder cash deposit products.

b. shares in an open ended investment company investing in bonds and money market instruments.

c. shares in unit trusts which are money market schemes.

d. savings accounts with a bank.

e. a life assurance policy that is likely to return between 65% and 75% of the investor's original capital within 5 years of the investment date.

 

 

a. stakeholder cash deposit products.

d. savings accounts with a bank.

chapter reference 1B3E

 

40

Bob and Betty have a joint account with BigBank plc for £200,000, plus they have £50,000 each with BTS Bank. In the event of both banks defaulting, what would they receive under the Financial Services Compensation Scheme?

You must select ALL the correct options to gain the mark:

a. £50,000 for Betty's BTS Bank account.

b. A maximum of no more than £85,000 each in total.

c. £170,000 for the joint account with BigBank.

d. £85,000 as a couple for the BTS Bank accounts.

e. £50,000 for Bob's BTS Bank account.

 

a. £50,000 for Betty's BTS Bank account.

c. £170,000 for the joint account with BigBank.

e. £50,000 for Bob's BTS Bank account.

chapter reference 1B2A

41

In June 2020 Karen paid £12,500 for gilts with a nominal value of £10,000. Within six months she receives her first interest payment of £200. What is the coupon on the gilt?

Select one:

a. 4%.

b. 2%.

c. 1.6%.

d. 3.2%.

 

 

a. 4%.

chapter reference 1C1A

42

Larry, a private investor, would like to include commercial bills in his portfolio. How could he achieve this?

Select one:

a. Deal through a stockbroker.

b. Apply direct to the issuing company.

c. Submit a bid at the issuing auction.

d. Buy units in a money market fund.

 

 

d. Buy units in a money market fund.

chapter reference 1B5C

43

A higher-rate taxpayer invests £50,000 in gilts. Within two years, their value has increased to £60,000 and he sells the gilts. Assuming that he has previously used his annual capital gains tax [CGT] exemption, how much CGT, if any, will be due on this transaction?

Select one:

a. £2,000.

b. £1,800.

c. £2,800.

d. Nil. 

Correct, chapter reference 1C4B

 

 

d. Nil. 

chapter reference 1C4B

44

Anita directly owns a corporate bond. Should interest rates rise, the most likely outcome to the capital value and yield will be a:

Select one:

a. rise in capital value with the yield decreasing.

b. fall in capital value with the yield increasing.

c. rise in capital value with the yield also increasing.

d. fall in capital value with the yield also decreasing.

 

 

b. fall in capital value with the yield increasing.

 

 chapter reference 1C5A

45

A company that is considering offering corporate bonds to raise capital should understand that:

You must select ALL the correct options to gain the mark:

a. they would not be restricted as to the number of bonds they could offer.

b. the rate of interest will always be linked to a relevant money market rate.

c. a corporate bond is a financial instrument representing debt.

d. they may offer secured or unsecured bonds.

e. bonds are often a company's cheapest method of borrowing money.

a. they would not be restricted as to the number of bonds they could offer.

c. a corporate bond is a financial instrument representing debt.

d. they may offer secured or unsecured bonds.

e. bonds are often a company's cheapest method of borrowing money.

chapter reference 1C

46

Companies often raise long-term finance by issuing bonds rather than borrowing from banks. What are the advantages of doing this?

You must select ALL the correct options to gain the mark:

a. Banks may not be prepared to lend the amount required.

b. The interest rate on a bond can be renegotiated partway through its term.

c. Bonds are often the cheapest method of borrowing money.

d. Bonds do not have to be repaid unless the company is wound up.

e. The bond market offers a wide range of lenders to tap into.

a. Banks may not be prepared to lend the amount required.

c. Bonds are often the cheapest method of borrowing money.

e. The bond market offers a wide range of lenders to tap into.

chapter reference 1C

47

Gautum has invested in Treasury bills. Which of these characteristics of his investment is INCORRECT?

Select one:

a. He must have purchased a minimum of £500,000 nominal of bills.

b. He could have obtained them at a routine weekly auction.

c. The interest he will receive is linked to RPI three months prior to issue.

d. Their prevailing rate of return is often used as the benchmark 'risk-free rate of return'.

c. The interest he will receive is linked to RPI three months prior to issue.

 

chapter reference 1B5B

48

Caroline purchases a fixed-interest security with a coupon of 6% for £125. She should be advised that the:

You must select ALL the correct options to gain the mark:

a. redemption yield will be higher than the interest yield.

b. redemption yield takes into account any tax that Caroline will have to pay.

c. redemption yield is a more accurate calculation of the yield on the security than an interest yield.

d. interest yield is 4.8%.

c. redemption yield is a more accurate calculation of the yield on the security than an interest yield.

d. interest yield is 4.8%.

chapter reference 1C4

49

Kim has £100,000 in a UK deposit account; Anisha has £100,000 in an offshore sterling deposit account. This means that:

Select one:

a. Kim's deposit will be covered in full by the Financial Services Compensation Scheme.

b. Kim will always receive her interest net of tax.

c. Anisha’s rate of interest must be fixed for a specific term.

d. Anisha is likely to receive a higher rate of interest.

d. Anisha is likely to receive a higher rate of interest.

chapter reference 1B3D

50

Bethany is 17 years old and a UK resident. As far as ISAs are concerned, in the current tax year she could:

Select one:

a. transfer some or all of a previous tax year's cash ISA to another cash ISA at any time.

b. transfer an existing cash ISA to a stocks and shares ISA.

c. transfer an existing stocks and shares ISA to a cash ISA.

d. make a partial transfer of her current year's cash ISA.

a. transfer some or all of a previous tax year's cash ISA to another cash ISA at any time.

chapter reference 1B3E

51

An investor receives an interest yield of 3.2% on a £100 nominal value of stock for which he pays a clean price of £125. What is the coupon on this stock?

Select one:

a. 5.12%.

b. 2.56%.

c. 4%.

d. 3.2%.

c. 4%.

 

chapter reference 1C4A

52

Which type of gilt would be expected to show the greatest price volatility?

Select one:

a. 4% Treasury 2023.

b. 4% Treasury 2034.

c. 5% Treasury 2028.

d. 5% Treasury 2034.

b. 4% Treasury 2034.

 

chapter reference 1C5D

53

A company has recently had its credit rating improved. As a result, the yield demanded by investors from the stock is likely to:

Select one:

a. reduce.

b. fluctuate.

c. increase.

d. stay the same.

a. reduce.

 

chapter reference 1C5B

54

Janez has a maturing National Savings and Investment [NS&I] Guaranteed Income Bond and is looking to re-invest the proceeds. Her adviser might have suggested that NS&I Income Bonds are more suitable for her than NS&I Guaranteed Income Bonds because she:

Select one:

a. wants to receive her interest monthly.

b. wants a fixed term product.

c. prefers a variable rate of interest.

d. prefers a fixed rate of interest.

c. prefers a variable rate of interest.

 

chapter reference 1B4

55

Joe is a higher-rate taxpayer who directly owns conventional gilts in his investment portfolio. From a tax perspective, these gilts will be:

Select one:

a. free of capital gains tax and the income is tax-free.

b. free of capital gains tax, but the income is taxable at Joe's highest marginal rate.

c. subject to capital gains tax at 20%, and the income is taxable at Joe's highest marginal rate.

d. subject to capital gains tax at 20%, but the income is tax-free.

b. free of capital gains tax, but the income is taxable at Joe's highest marginal rate.

 

chapter reference 1C4B

56

Josh purchased a conventional gilt with a remaining term of 17 years via the secondary market 3 years ago for above par. Josh should understand that:

You must select ALL the correct options to gain the mark:

a. the income will be variable.

b. gilts are generally higher risk than corporate bonds.

c. the gilt would be now classed as medium.

d. he will make a capital loss if he holds the gilt to redemption.

 

c. the gilt would be now classed as medium.

 

d. he will make a capital loss if he holds the gilt to redemption.

chapter reference 1C7/1C4A

57

Henry purchased a fixed interest security cum dividend 30 days before the next income payment was due. This means that:

You must select ALL the correct options to gain the mark:

a. he will pay the clean price less interest accrued up to the settlement date.

b. he will pay less for the security than if the purchase had been ex dividend.

c. the amount paid by Henry for the security will be the dirty price.

d. the seller will receive the next interest payment.

e. he will receive the full six months' interest on the next interest payment date.

c. the amount paid by Henry for the security will be the dirty price.

e. he will receive the full six months' interest on the next interest payment date.

chapter reference 1C2C

58

PQR Plc has issued commercial bills. This is most likely to help the company:

Select one:

a. increase their appeal in the equity market.

b. fund their long-term liabilities.

c. fund their day-to-day cash flows.

d. receive inward investment from overseas.

c. fund their day-to-day cash flows.

 

chapter reference 1B5B

59

Zane, a higher-rate taxpayer, owns a conventional gilt which he inherited from his father. It has 11 years remaining until redemption. He should be aware that:

Select one:

a. the yield on the gilt will always be the same as the coupon.

b. he will not be able to sell the gilt prior to its maturity.

c. the price of the gilt will always rise as it reaches its maturity.

d. if the coupon is above current interest rates, the bond should trade above par.

d. if the coupon is above current interest rates, the bond should trade above par.

chapter reference 1C4A

60

Mr and Mrs Cameron have three children aged 19, 15 and 13. What is the maximum that can be invested by the family in cash ISAs excluding Junior ISAs in 2020/21?

Select one:

a. £80,000.

b. £100,000.

c. £40,000.

d. £60,000.

d. £60,000.

chapter reference 1B3E

61

George has £100,000 in a deposit account with Barclays in Jersey and £90,000 in a deposit account with Lloyds in Manchester. What maximum amount of these deposits, if any, is protected under the Financial Services Compensation Scheme?

Select one:

a. £85,000.

b. £190,000.

c. £90,000.

d. £170,000.

a. £85,000.

chapter reference 1B2A

62

The Brown family comprises Mr and Mrs Brown and their three children aged 18, 16 and 13. Excluding Junior ISAs, what is the maximum that can be invested by the family in cash ISAs in the current tax year?

Select one:

a. £78,000.

b. £100,000.

c. £69,000.

d. £80,000.

d. £80,000.

chapter reference 1B3E

63

Kyle has £105,000 on deposit with a bank in the UK and £100,000 on deposit with a bank in Jersey. Under the UK Financial Services Compensation Scheme:

You must select ALL the correct options to gain the mark:

a. he is protected for a total of £85,000.

b. he is protected for a total of £170,000.

c. the deposits in the UK are unprotected.

d. the deposits in Jersey are unprotected.

a. he is protected for a total of £85,000.

d. the deposits in Jersey are unprotected.

chapter reference 1B2A

64

In May 2020 Stuart paid £12,500 for £10,000 nominal value of Treasury 5% 2030. How much interest will he receive from this stock every six months?

Select one:

a. £625.

b. £500.

c. £312.50.

d. £250.

d. £250.

chapter reference 1C1A

65

A company's credit rating has been marked down unexpectedly. The yield from bonds previously issued by them will:

Select one:

a. be unaffected.

b. fluctuate.

c. rise.

d. fall.

c. rise.

chapter reference 1C5B

66

Simone owns corporate bonds issued by Masters Ltd. In the event of the business being wound up, repayment of her unsecured bonds:

Select one:

a. would rank alongside ordinary shareholders of the company.

b. would rank alongside ordinary creditors of the company.

c. is guaranteed, provided there are no secured creditors.

d. is guaranteed, provided there are no preference shareholders.

b. would rank alongside ordinary creditors of the company.

chapter reference 1C8A

67

Oliver purchases a holding of 4% Treasury Stock 2025 for £124 per £100 nominal, and this means that:

You must select ALL the correct options to gain the mark:

a. he will receive gross interest of £4.96 per annum per £100 nominal.

b. he will make a capital loss if he holds the stock to redemption.

c. the interest yield is 3.23%.

d. the stock is priced above par because the coupon is higher than current interest rates.

e. the redemption yield will be more than 4%.

b. he will make a capital loss if he holds the stock to redemption.

c. the interest yield is 3.23%.

d. the stock is priced above par because the coupon is higher than current interest rates.

chapter reference 1C4A

68

An investor receives an interest yield of 4% on a £100 nominal value of stock for which he pays a clean price of £125. What is the coupon on this stock?

Select one:

a. 3.2%.

b. 3%.

c. 5%.

d. 6.4%.

c. 5%.

chapter reference 1C4A

69

John, a basic-rate taxpayer, is looking to purchase a new 'medium' gilt. He will receive a:

You must select ALL the correct options to gain the mark:

a. payment on an annual basis.

b. fixed redemption value.

c. fixed rate of interest.

d. repayment of capital after a fixed period.

b. fixed redemption value.

c. fixed rate of interest.

d. repayment of capital after a fixed period.

chapter reference 1C1

70

Neil is a UK-based investor considering investing in a non-sterling offshore account. He should be aware that:

You must select ALL the correct options to gain the mark:

a. high rates of interest are usually offered by countries with potentially collapsing currencies.

b. some foreign countries do not have the same level of supervisory structures as the UK.

c. strong currencies make up for their low interest rate with currency gains.

d. the Financial Services Compensation Scheme covers accounts held outside mainland UK by UK-based investors.

e. strong currencies do not strengthen continuously against sterling.

a. high rates of interest are usually offered by countries with potentially collapsing currencies.

b. some foreign countries do not have the same level of supervisory structures as the UK.

e. strong currencies do not strengthen continuously against sterling.

chapter reference 1B2D

71

When comparing the different types of money market instruments:

You must select ALL the correct options to gain the mark:

a. Treasury bills are often issued to finance the long-term cash needs of the government.

b. commercial bills are issued at a discount to their maturity value.

c. commercial bills are short-term negotiable debt that carry a fixed rate of interest.

d. banks and building societies can raise funds by issuing certificates of deposit.

b. commercial bills are issued at a discount to their maturity value.

d. banks and building societies can raise funds by issuing certificates of deposit.

72

Adam ensures his portfolio always contains an appropriate amount in cash as he wishes to mitigate the impact of:

Select one:

a. liquidity risk.

b. interest rate risk.

c. inflation risk.

d. default risk.

a. liquidity risk.

chapter reference 1C5

73

The differences between gilts and corporate bonds include:

You must select ALL the correct options to gain the mark:

a. yields on gilts are generally higher than corporate bonds.

b. the spread between buying and selling prices is generally wider for gilts than for corporate bonds.

c. only gilts can be sold on the secondary market.

d. the risk attaching to corporate bonds is generally higher than that attaching to gilts.

e. prices of gilts are typically less volatile than prices of corporate bonds.

c. only gilts can be sold on the secondary market.

d. the risk attaching to corporate bonds is generally higher than that attaching to gilts.

74

Mr and Mrs Evans hold £90,000 in a joint bank account with Lloyds Bank. In addition Mr Evans has £35,000 in a single account with Barclays and Mrs Evans has £55,000 in a single account with HSBC. The amount of protection that they have together under the Financial Services Compensation Scheme is:

Select one:

a. £175,000.

b. £140,000.

c. £120,000.

d. £180,000.

 

 

d. £180,000.

 chapter reference 1B2A

75

Connor directly owns an index-linked gilt, issued in 2011. This detail allows you to confirm that:

You must select ALL the correct options to gain the mark:

a. his gilt is liable to capital gains tax on disposal at any time.

b. the full amount of interest received is taxable.

c. his gilt uses the RPI rate three months prior to each payment date.

d. only his interest payment is adjusted in line with inflation.

e. the initial coupon would have been lower than for conventional stock.

a. his gilt is liable to capital gains tax on disposal at any time.

b. the full amount of interest received is taxable.

c. his gilt uses the RPI rate three months prior to each payment date.

chapter reference 1C7B

76

Guaranteed Growth Bonds from National Savings and Investments [NS&I]:

Select one:

a. are available to anyone over the age of 18.

b. have an interest rate which is fixed, and is dependent upon the term selected.

c. are offered for a maximum period of three years.

d. have a taxable interest which cannot be offset against the investor's personal savings allowance.

b. have an interest rate which is fixed, and is dependent upon the term selected.

chapter reference 1B4F