Friday Five Focus on Investments – 23 June – 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 2022/23, examinable by the CII until 31 August 2023. They do not relate to tax year 2023/24 which is only examinable by the CII from 1 September 2023.

1. Gemma is new to investment and has been advised that her portfolio should include a level of cash liquidity. This is most likely in order to
   1. take advantage of the fact that tax is not paid on any interest.
   2. meet with the FCA legislation on holdings of cash.
   3. take advantage of short-term investment opportunities.
   4. provide higher returns over the longer term.

2. What are the differences between the FTSE SmallCap and the FTSE Fledgling? (Tick all that apply)
   1. FTSE SmallCap is calculated 2 ways (including and excluding investment trusts).
   2. FTSE SmallCap constituent companies are reviewed quarterly.
   3. FTSE SmallCap is a real-time index.
   4. FTSE Fledging index forms part of FTSE All-Small.

3. Cynthia is considering investment in a Venture Capital Trust; it is true to say that the tax advantages of her doing so are that she (Tick all that apply)
   1. will receive Income Tax relief of 30%.
   2. can use reinvestment relief for Capital Gains Tax purposes.
   3. will pay no Income Tax on any dividends she receives.
   4. will receive 100% Inheritance Tax relief after two years.

4. If an investment portfolio has an annualised return of 8% compared to a 3% return from a risk-free investment and the standard deviation of the portfolio is 7%, the Sharpe ratio is
   1. 0.5
   2. 0.71
   3. 3.5
   4. 7.1

5. Henry has an adventurous attitude to risk and is considering an investment in a Venture Capital Trust (VCT). He is a higher-rate taxpayer so should be aware that
   1. dividends from ordinary shares in VCTs are exempt from Income Tax.
   2. Income Tax relief will be clawed back if he does not hold the shares for 3 years.
   3. on disposal, he could potentially be liable to Capital Gains Tax at 20%.
   4. dividends from ordinary shares in VCTs are taxable at 33.75% over his dividend allowance.

Answers

1. C – See R02 Study Text, Chp 9
   Grab our taster mock exam paper for CII R02. Click here to download.

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

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

4. B – See J10 Study Text, Chp 11
   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.