Friday Five Focus on Investments – 5 Questions in 5 Minutes – 1 May 2026

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 2025/26, examinable by the CII until 31 August 2026. They do not relate to tax year 2026/27 which is only examinable by the CII from 1 September 2026.

1. If a bank is on the brink of failure and, as a consequence, the depositors suffer a loss on their holdings, this is known as
   1. downgrade risk.
   2. bail-in risk.
   3. currency risk.
   4. systematic risk.

2. Kim is considering the purchase of an investment trust ISA or a unit trust ISA. In comparing them, she should be aware that
   1. investment trust ISAs provide a much broader spread of holdings for relatively small investment.
   2. the ISA structure allows the unit trust manager to receive interest from corporate bonds without any tax being deducted.
   3. unit trust ISAs are eligible to invest in any UK UCITS scheme recognised by the FCA.
   4. investment trust ISAs generally have a smaller investment choice.

3. If two assets have a correlation of 0.25, this tells us their relationship within a portfolio is
   1. closely linked and would therefore increase the volatility in the portfolio.
   2. negatively correlated and will therefore move in opposite directions.
   3. positively correlated and will therefore move in opposite directions.
   4. that they have low correlation so would reduce volatility in the portfolio.

4. Sajid is a higher-rate taxpayer and wishes to invest into NS&I Guaranteed Income Bonds. He should be aware that
   1. interest is paid net of basic rate Income Tax.
   2. it is not possible to use the Personal Savings Allowance against interest.
   3. interest is paid gross but is taxable.
   4. it is possible to use the dividend allowance against returns.

5. When interpreting returns from Treasury bills, a financial adviser should be aware that
   1. they pay an interest amount on a daily basis.
   2. interest earned is dependent on market conditions and is paid monthly.
   3. interest earned is the difference in the purchase price and maturity value.
   4. they pay a lump sum interest payment at the end of the maturity period.

Answers

1. B; See R02 Study Text, Chp 6; Rationale: Bail-in is where financial help comes from the existing shareholders, bondholders, and depositors. This can be compared with a bail-out where it is a government or central bank that bails out a financial institution in difficulty.
2. D; See R02 Study Text, Chp 8; Rationale: The choice of investment trust ISAs is smaller than the choice of unit trust ISAs.
3. D; See R02 Study Text, Chp 10; Rationale: If two assets have a correlation of 0.25, this is low positive correlation. Although they are likely to move in the same direction, assets with a low correlation reduce volatility in a portfolio.
4. C; See R02 Study Text, Chp 1; Rationale: The NS&I Guaranteed Income Bond pays interest gross, but the interest is taxable and can be set against the Personal Savings Allowance.
5. C; See R02 Study Text, Chp 1; Rationale: Treasury bills are issued by the government to meet their short-term cash flow requirements. They are issued at a discount (the purchase price) to their maturity (or par) value. The difference between the maturity value and the purchase price is the interest earned.

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