Friday Five – 24 June – 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 2015/16, examinable by the CII until 31 August 2016. They do not relate to tax year 2016/17 which is only examinable by the CII from 1 September 2016.

1. Why would a client who has a history of small regular savings arouse suspicion if he proposed a substantial investment to his IFA?
   1. It might indicate that there had been missed opportunities within the client’s fact find
   2. It might affect the client’s existing estate planning recommendations
   3. The source of the money should be verified for money laundering purposes
   4. It might imbalance or jeopardise the client’s overall portfolio

2. Lisa has recently made a £100,000 gain on selling her buy to let home. She is now considering whether to reinvest this in an Enterprise Investment Scheme (EIS). Which of the following would be a benefit to Lisa of doing this?
   1. She can defer the original gain until she disposes of the EIS shares
   2. 50% of the original gain will be exempt from tax
   3. Any subsequent gain would be taxed at a lower rate on disposal
   4. This will reduce the base cost of the EIS shares by the original gain

3. Mary dies at age 56 before crystallisation of her only pension fund. At the date of death, her SSAS value was £750,000 and she also had £1m of pension term assurance. If her dependants took all benefits in the form of a lump sum benefit, the lifetime allowance charge (if any) would be:
   1. £0.
   2. £125,000.
   3. £225,000.
   4. £275,000.

4. What is the underlying assumption central to Modern Portfolio Theory (MPT)?
   1. That investors are irrational and cannot influence prices directly
   2. Investors are risk averse and would choose a less risky investment if offered two with the same return
   3. That investors have persistent biases which are motivated by psychological factors
   4. That security prices fully reflect all available information and prices rapidly adjust to new information

5. Which of the following is taken into account in the case of a married couple / civil partnership when one spouse / partner is assessed as requiring residential care?
   1. The spouse / partner’s income
   2. The spouse / partner’s capital
   3. Income from a trust where the resident is absolutely entitled to that income
   4. A property owned by the resident occupied by the spouse / partner

Answers

1. C – See R01 Study Text, Chp 6, Section E2A
   Grab our taster mock exam paper for CII R01. Click here to download.

2. A – See R03 Study Text, Chp 3, Section F5
   Grab our taster mock exam paper for CII R03. Click here to download.

3. D – See R04 Study Text, Chp 2.2, Section E2A
   Grab our taster mock exam paper for CII R04. Click here to download.

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

5. C – See CF8 Study Text, Chp 3, Section B4C
   Grab our taster mock exam paper for CII CF8. 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!)