Friday Five Focus on Investments – 5 Questions in 5 Minutes – 20 Feb 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.

1. James has one buy-to-let property and is currently looking to invest in a second. He has been warned that he may suffer liquidity risk. You can tell him that this refers to
   1. the risk of the tenants’ being unable to pay the rent and him having to take legal action.
   2. a new government changing fiscal policy resulting in a reduced rental yield.
   3. the potential of his being forced to sell a security at a price below its fair value.
   4. the risk of his not being able to find tenants when an existing tenant vacates the property.

2. Corrine is considering investing in an exchange traded fund (ETF) and Carl is considering investing in an exchange traded note (ETN). A difference between the two investments is that
   1. ETNs have a maturity date.
   2. ETFs are traded on major stock markets.
   3. ETNs performance tracks the movement of an index.
   4. ETFs give access to specialist market niches.

3. Rob has a tax bill to pay in six months’ time. What would you expect therefore to be the most important investment consideration for him?
   1. Preserving capital value.
   2. Producing returns in excess of inflation.
   3. Ability to maximise returns quickly.
   4. Diversification.

4. Michael has been told he may need to be aware of reinvestment risk. This refers to
   1. a potential penalty suffered on early encashment within a fixed rate notice period.
   2. fluctuating interest rates on variable savings accounts.
   3. the inability to secure the same level of interest on maturing money from fixed rate accounts.
   4. the withdrawal of maturity investment options on monies in fixed rate and variable rate accounts.

5. Harry’s call option has a strike price that is equal to the current price of the underlying asset. From this information, we can say that Harry’s call option is
   1. in-the-money.
   2. out-of-the-money.
   3. at-the-money.
   4. under-the money.

Answers

1. C; See R02 Study Text, Chp 6; Rationale: Liquidity risk is the risk that an asset cannot be traded quickly enough and may therefore have to be sold at a price below its fair value. Property can be particularly illiquid.
2. A; See R03 Study Text, Chp 8; Rationale: ETNs are bonds that have a maturity date, but ETFs are funds that do not have a maturity date. Both are traded on major stock markets, track the performance of an index, and give access to specialist market niches.
3. A; See R02 Study Text, Chp 9; Rationale: If a client has a short-term horizon for their investment (i.e., only a short time over which the investment is to be held before is it liquidated) the most important consideration is preservation of capital.
4. C; See R02 Study Text, Chp 1; Rationale: Reinvestment risk is the risk that investors with fixed interest accounts are unable to obtain the same level of interest when reinvesting their money due to the fact interest rates have fallen.
5. C; See R02 Study Text, Chp 8; Rationale: As Harry’s strike price is the same as the current price of the underlying asset, then this is called ‘at-the-money’.

Grab the resources you need!

Short quizzes are useful for checking understanding, but full exam preparation requires longer, exam-standard practice. Our CII R02 E-Mocks replicate the structure and level of challenge you’ll face in the real exam. Give the free R02 E-Mocks taster a try as your next step in revision.

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