Friday Five Focus on Investments – 28 July – 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. A limited company has a high dividend cover; this might suggest that the company is (Tick all that apply)
   1. paying out too much profit and the position is unsustainable.
   2. retaining the majority of its earnings.
   3. able to maintain the existing dividend if profits fell.
   4. paying the majority of profits to shareholders with little reinvestment in the business.

2. A retail client is interested in investing in lump sum life assurance bonds. As their adviser, you can tell them that (Tick all that apply)
   1. most are written as whole of life policies with no specific maturity date.
   2. life cover is usually just in excess of the value of the fund on death.
   3. any regular withdrawals are considered to be a return of capital.
   4. because they are lump sum investments they are classed as qualifying policies.

3. Which one of these terms describes how a gilt could be classified based on its time until redemption?
   1. Mid-term.
   2. Mediums.
   3. Index-linked.
   4. Average term.

4. Company X has a share price of £9.20, a dividend of 12p, EPS of 70p and 100,000 shares in issue. What is the price-earnings ratio?
   1. 76.67
   2. 13.14
   3. 7.61
   4. 0.92

5. Your client Tom is a higher-rate taxpayer and is interested in making an investment in an offshore investment bond. When discussing the tax treatment with him, you explain that
   1. any gains he makes will be chargeable to Capital Gains Tax at 20%.
   2. offshore bonds never form part of an estate for Inheritance Tax purposes.
   3. any income received by an offshore life fund may be subject to withholding tax.
   4. the tax deferred 5% withdrawals are only available for a maximum of 10 years.

Answers

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

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

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

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

5. C – See J10 Study Text, Chp 4
   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.