Friday Five Focus on Investments – 5 Questions in 5 Minutes – 7 Nov 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. Caroline invested £12,000 into a unit trust which was worth £18,020 after six years. What compound rate of return has she achieved?
   1. 7.01%
   2. 5.01%
   3. 6.21%
   4. 6.72%

2. A financial adviser is considering a fettered multi-manager fund for a client. They should be aware that a fettered fund can invest
   1. only in funds run by the same management group.
   2. in funds from any management group.
   3. only in funds within the same asset class.
   4. only in multi-manager funds.

3. Toby is a new client. Why might his adviser consider multi-manager funds instead of creating a complete set of model portfolios?
   1. To avoid the need for future reviews.
   2. To reduce the volume of required fund research.
   3. If the client has adopted a ‘mental accounting’ approach.
   4. Where the client doesn’t fit one of the standardised risk profiles.

4. A retail client has asked their financial adviser for clarification on the ongoing charges figure (OCF) applied to their fund. The adviser would explain that the OCF represents
   1. most charges expressed as a percentage of assets under management.
   2. all charges expressed as a percentage of assets under management.
   3. the annual management charge expressed as a percentage.
   4. an initial charge plus a fee for performance over a target level.

5. Rebalancing a portfolio is an essential feature of asset allocation because
   1. a divergence from a client’s asset allocation could result in higher risk.
   2. research suggests rebalancing monthly provides significantly enhanced benefits.
   3. a client’s attitude to risk will always reduce the closer they get to retirement.
   4. the economic environment presents new opportunities in different asset classes over time.

Answers

1. A; See R02 Study Text, Chp 5; Rationale: The formula to calculate future value is FV = PV (1 + r)ⁿ where FV = the future value, PV = present value, n = number of time periods and r = interest rate. Therefore, the calculation is: £18,020 = £12,000 (1 + r)⁶. To calculate the interest rate, we need to isolate the unknown (r). £18,020 / £12,000 = (1 + r)⁶. So, 1.5017 = (1 + r)⁶. We then need to take the sixth root of both sides of the equation (use the y√ x on your scientific calculator): ⁶√1.5017 = 1 + r. So, 1.0701 = 1 + r and finally we subtract 1 from both sides. Therefore, r = 0.0701, to convert this to a percentage (rather than a decimal) we × 100 so the interest rate = 0.0701 × 100 = 7.01%.
2. A; See R02 Study Text, Chp 7; Rationale: The term ‘fettered’ fund applies to a type of multi-manager fund that can only invest in funds run by the same management group, whereas an unfettered fund can select from any fund and management group.
3. B; See R02 Study Text, Chp 9; Rationale: The use of multi-manager funds reduces the volume of fund research required as the adviser does not have to research each of the individual funds as they would if they were putting together a model portfolio. The multi-manager funds used however should be reviewed against their peers.
4. A; See R02 Study Text, Chp 10; Rationale: The OCF includes most ongoing charges (including the AMC), which is then expressed as a percentage of the assets under management. It does not include the initial charge, exit charges, or dealing costs.
5. A; See R02 Study Text, Chp 9; Rationale: Rebalancing is an essential feature of asset allocation; particularly as higher risk investments are likely to outperform lower risk investments over time. Divergence from a client’s asset allocation could mean a higher risk than the client is prepared to take.

Grab the resources you need!

If you tackled this week’s quiz confidently, it’s time to put your knowledge to the test under exam conditions. Our CII R02 E-Mocks mirror the real exam experience – timed, structured, and designed to pinpoint areas to improve before exam day.

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