Friday Five Focus on Investments – 14 January – 5 Questions in 5 Minutes

Friday Five Focus on Investments – 5 Questions in 5 Minutes Every Friday

What’s this all about?

Each week, we ask questions relating to one of these topics: Investments, Taxation, Pensions, Protection, or Regulation. This week, our Friday Five is relevant to Investments; this is useful as you prepare for any of the CII’s R02, AF4, or J10 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 2021/22, examinable by the CII until 31 August 2022.

1. Charlie and Juan each have a rental property, the details of which are as follows:
   

   Name	Cost of Property	Purchase Costs	Rental Income	Expenses
   Charlie	£160,000	£2,300	£600pm	£100pm
   Juan	£130,000	£2,100	£550pm	£90pm

   What are the respective net rental yields for Charlie and Juan?
   1. 3.70% and 4.18%
   2. 3.75% and 4.25%
   3. 4.5% and 5.08%
   4. 4.44% and 4.50%

2. Which of the following is not an underlying assumption for the Capital Asset Pricing Model (CAPM)?
   1. Information is free and available to all investors
   2. All investors have identical holding periods
   3. The quantity of risky assets is limitless to include liquidity
   4. Investors are rational and risk averse

3. Madeline is buying futures; what does she expect the price of the underlying asset to do?
   1. Remain level
   2. Fall
   3. Price is not relevant
   4. Rise

4. A machine needed to produce goods for a company is bought for £5,000. It has a useful life of 6 years and an expected re-sale value then of £500. What is the annual depreciation charge?
   1. £916
   2. £833
   3. £750
   4. £417

5. It is important that investors and their financial advisers considering structured products thoroughly understand the risks involved. Why is credit risk a particularly important factor to consider when looking at structured products?
   1. The creditworthiness of the issuer and any counterparties might affect the ability to repay at maturity.
   2. The client needs to consider the costs and fees associated with buying, holding, and selling the structured product.
   3. It is essential to determine the extent to which the investor will capture any upward movements in the market.
   4. The lack of an established secondary market means investors are unable to trade the products.

Answers

1. A – See R02 Study Text, Chp 2
   Grab our taster mock exam paper for CII R02. Click here to download.

2. C – See R02 Study Text, Chp 4
   Grab our taster mock exam paper for CII R02. Click here to download.

3. D – See R02 Study Text, Chp 8
   Grab our taster mock exam paper for CII R02. Click here to download.

4. C – See J10 Study Text, Chp 14
   Grab our taster mock exam paper for CII J10 Click here to download.

5. A – See J10 Study Text, Chp 3
   Grab our taster mock exam paper for CII J10. 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?

If you found this quiz useful for your CII exam revision, please do share it with your colleagues.