Friday Five – 12 May – 5 Questions in 5 Minutes

Welcome to this week’s Friday Five – 5 Questions in 5 Minutes Every Friday

What’s this all about?

It’s a bit of Friday Fun where we provide you with 5 questions relevant to a mix of CII exams. The challenge is for you to answer them in 5 minutes. Answers at the bottom of the page.

Questions

IMPORTANT!  These questions relate to examinable tax year 2016/17, examinable by the CII until 31 August 2017.  They do not relate to tax year 2017/18 which is only examinable by the CII from 1 September 2017.

1. If a provider gives any benefits or inducements to an intermediary how long must they keep records for?
   1. 7 years
   2. 6 years
   3. 5 years
   4. 3 years

2. Stan transferred an onshore investment bond into a discretionary trust for the benefit of his young grandchildren. He has recently died and the trustees are planning on surrendering the bond to distribute the proceeds to the beneficiaries. They should be aware that: Tick all that apply.
   1. if the surrender occurs in the same tax year as Stan died then any gain is treated as part of Stan’s income
   2. if the surrender occurs in the tax year after Stan has died then any chargeable gain escapes tax
   3. any potential tax charge can be avoided if the bond is assigned to non-taxpaying beneficiaries for them to trigger the chargeable event
   4. the surrender of the bond will trigger a capital gains tax liability and any tax will be paid by the trustees

3. Which of the following risks would apply to the drawdown pension option your client is entering into? Tick all that apply.
   1. The underlying annuity rate will increase during period of deferral in drawdown.
   2. Potentially high charges for administration/reviews.
   3. The value of the fund can go down as well as up.
   4. Depletion of fund through high-income withdrawals.

4. Behavioural finance is an area of research that explores how emotional and psychological factors affect investment decisions. In Behavioural Finance, what does Prospect Theory deal with?
   1. That behavioural abnormalities will eventually be priced out of the market
   2. That the effect of human behaviour on the market can be predicted
   3. That behavioural finance is a collection of explanations of anomalies
   4. That people do not always behave rationally

5. The price of a warrant is 10p, the underlying share price is 110p and the exercise price is 132p. What is the conversion premium?
   1. 13.20%
   2. 17.86%
   3. 29.09%
   4. 75.75%

Answers

1. C – See R01 Study Text, Chp 5:2
   Grab our taster mock exam paper for CII R01. Click here to download.

2. AC – See R03 Study Text, Chp 10
   Grab our taster mock exam paper for CII R03. Click here to download.

3. BCD – See R04 Study Text, Chp 6:2
   Grab our taster mock exam paper for CII R04. Click here to download.

4. D – See J10 Study Text, Chp 8
   Grab our taster mock exam paper for CII J10. Click here to download.

5. C – See J12 Study Text, Chp 1
   Grab our taster mock exam paper for CII J12. Click here to download.

How did you find this week’s questions? Did you complete them in 5 minutes? Did you get them all correct? Do you disagree with any?

Do let us know by leaving a comment below – we promise to read them all. (Humour particularly appreciated on a Friday!)