Friday Five Focus on Investments – 5 Questions in 5 Minutes – 3 Oct 2025

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. Your client needs to achieve a real rate of return of 4.5% and inflation is estimated at 2% over the next year. What approximate nominal return must be achieved to meet his goal?
   1. 7.4%
   2. 6.59%
   3. 6.50%
   4. 6.08%

2. With a unit trust, it is the trustee’s duty to maintain a register of unitholders which must be available for inspection by the unitholders. However, the register may be closed at times during a year for a period of not more than
   1. 10 days.
   2. 12 days.
   3. 21 days.
   4. 30 days.

3. Sally is a financial adviser and is meeting with a new client to discuss risk profiling. Her client demonstrates a phenomenon identified by behavioural finance as ’mental accounting’. This is referring to the fact her client
   1. can calculate their own net asset position.
   2. has a different attitude to risk in respect of different objectives.
   3. has a preference for visual data as opposed to verbal explanations.
   4. is willing to use stochastic modelling and probability techniques.

4. A fund manager pays no attention to index benchmarks when constructing a portfolio which suggests that the method of construction being used is
   1. passive.
   2. index tracking.
   3. top-down.
   4. bottom-up.

5. Priti is investing in a Seed Enterprise Investment Scheme. After how long of holding the investment will she receive 100% relief from Inheritance Tax?
   1. 1 year.
   2. 18 months.
   3. 2 years.
   4. 3 years.

Answers

1. C; See R02 Study Text, Chp 5; Rationale: To calculate the real rate of return (R_REAL) on an investment taking into account inflation (R_INF) we use the formula: R_REAL = R_NOM – R_INF where R_NOM is the nominal rate of return. Therefore, we rearrange the formula to R_NOM = R_REAL + R_INF. So, R_NOM = 4.5% + 2% = 6.5%
2. D; See R02 Study Text, Chp 7; Rationale: The register of unit holders within a unit trust can be closed by the trustees for up to 30 days in any one year.
3. B; See R02 Study Text, Chp 9; Rationale: Mental accounting refers to the theory that people like to categorise their money, having a different ‘mental account’ for each economic decision, e.g. applying a different attitude to risk in respect of different financial objectives.
4. D; See R02 Study Text, Chp 10; Rationale: If a fund manager pays no attention to index benchmarks, this suggests they are using the bottom-up approach of portfolio construction, focusing on companies rather than the economy or industry as a whole.
5. C; See R02 Study Text, Chp 8; Rationale: 100% relief from IHT is available on SEISs after 2 years due to business relief.

Grab the resources you need!

If you managed this week’s quiz, you’re ready for the next step: exam-standard practice. Our CII R02 mock exam papers replicate the real exam format, helping you build confidence and improve performance – available in online or PDF formats, or both. You can even access a free taster in our E-Mocks platform, giving you a true feel for the full resource before you commit.

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