IM4 V3 Sample Paper

CHARTERED INSTITUTE FOR
SECURITIES & INVESTMENT
R
PE
INVESTMENT MANAGEMENT
PA
(LEVEL 4) (VERSION 3)
E
PL
M
TIME ALLOWED: 2 HOURS

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No copying of any part of this paper is permitted without the prior

written authority of the Chartered Institute for Securities & Investment
© Chartered Institute for Securities & Investment

How to use this sample paper
These 80 questions should be answered in two hours in the real exam, so make sure you time
yourself accurately.
Record your answer for each question by circling your selected answer.
When you have finished the test, you may check your answers against the Answer Sheet
at the back of this paper.
The exam is scored as follows:
56-80 Pass
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0-55 Fail
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For those questions you answered incorrectly, the answer sheet will show you the corresponding
syllabus element, sub element and learning objective against which the questions were written,
so you can identify any syllabus areas where you may need to revise further.
PA
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PL
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Investment Management (Level 4) (Version 3)
1 Investor A and Investor B both bought index-linked gilts at issue but the indexation lag used for
reference date purposes under Investor A's gilts is five months longer than under Investor B's
gilts. This is because:
A Investor A is a private investor and Investor B is a financial institution
B Investor A made the purchase in 2003 and Investor B made the purchase in 2006
C Investor A purchased £500 nominal and Investor B purchased £50,000 nominal
D Investor A is a UK resident and Investor B is a non-UK resident
R
PE
2 The fact that open-ended investment companies have an open-ended investment structure,
means that:
A they have a similar corporate structure to investment trusts, therefore they can trade at a
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premium or discount to their net asset value, based on investor demand
B there are no restrictions on the number of shares that are issued, therefore their valuation
can never trade at a discount to their net asset value
C there are no restrictions on the type of fund structure that they can use, which includes
E
wholly derivative based and feeder funds
D they must apply for special certification in order to be allowed to market the fund
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throughout the European Economic Area

M
3 How are the proceeds from a maturing structured product normally taxed?
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A As regular income
B As a capital gain
C 10% tax credit
D As regular income above the £50,000 threshold

4 The immunisation of a bond portfolio from the effects of future interest rate changes can be
achieved by using:
A a buy and hold strategy
B an index tracking strategy
C a bond swap strategy
D a duration-based strategy
R
5 A hedge fund that expected the price of gold to rise bought an over-the-counter futures
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contract from a gold mine to deliver 100kg of gold in one year. The gold mine had to stop
producing one month later due to a civil war breaking out in the surrounding area. The price of
gold has risen, but the hedge fund is now concerned that the gold mine will not be able to
deliver the amount of gold it is contracted to do so. Such a risk is referred to as:
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A market risk
B counterparty risk
C liquidity risk
D systemic risk
E
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6 How are pre-payments classified and valued in the balance sheet?

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A Tangible fixed asset that is valued at its actual cost including capitalised expenses
B Non-current asset that is valued at the higher of cost or net realisable value
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C Intangible fixed asset that is valued at its actual cost excluding acquisition expenses
D Current asset that is valued at the lower of cost or net realisable value
7 A set of financial data shows returns of 8%, 14%, 16%, 16%, 24%, 24% and 24% respectively for
each of the last seven years. What is the arithmetic mean of these returns?
A 16%
B 18%
C 24%
D 126%
R
8 A fund has low expense ratios and is able to issue new shares when further money is invested.
PE
If no initial or exit charges are applied, what type of collective investment best matches these
features?
A Investment trust PA
B UK equity unit trust
C Exchange-traded fund
D Open-ended investment company

E
PL
9 Why is it often difficult to compare financial ratios for research and development companies?
A Past performance may give no indication of future performance and can not predict major
discoveries
M
B These companies usually have high debt levels, since they require large investments in
physical assets
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C Research and development costs have no impact on a company's profitability
D While companies may include estimates for major developments, this is accepted only
within the EU
10 A portfolio was valued at $10,000 on 1st December. On 15th December it was worth $10,500.
On 16th December the investor input $250. On 31st December the portfolio was valued at
$11,000. What is the time-weighted rate of return to the nearest decimal place?
A -2.8%
B 1.4%
C 7.4%
D 12.7%
R
PE
11 Which of the following assumptions does arbitrage pricing theory make?
A All securities trade at a discount over time
B All security markets gravitate to their average return

C
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All securities markets can be said to be price efficient
D All identified securities are highly correlated with each other

E
12 Company A holds 35% of the voting share capital in Company B. Under the equity method of
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accounting, how does this affect Company A's consolidated income statement?
A 35% of Company B's post-acquisition operating profit, interest payable, interest receivable
and tax are added to Company A's respective income statement items
M
B The consolidated accounts must include 35% of Company B's fixed asset investment
income, interest payable and interest receivable
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C 35% of Company B's total operating profit, income from fixed asset investments and tax
are added to Company A's respective income statement items
D The consolidated accounts must include 35% of Company B's post-acquisition operating
profit, fixed asset investment income and interest payable
13 How do the Companies Acts impose requirements on medium-sized companies in respect of

their publication of their cash flow statement within the company's accounts?
A It requires explanatory notes to accompany the cash flow statement
B It stipulates that a special auditors resolution accompanies the statement
C It obligates the company to notarise the statement within the accounting period
D It compels the cash flow statement to be countersigned by an independent non-executive

director
R
PE
14 A company has issued an 8% convertible loan stock that can be converted into 15 ordinary
shares per £100 nominal of loan stock. The loan stock is currently priced at £115 and the share
price is £7. What is the conversion premium?
A 4.16%
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B 8.00%
C 9.52%
D 15.00%
E
PL
15 Why is the total expense ratio important to investors? It:
A informs investors of the total annual charge for a fund

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B defines the maximum bid and offer spread

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C limits the amount a fund can charge investors
D defines the price at which units can be redeemed

16 How can the profitability of a company be documented? By using a:
A balance sheet
B cash flow statement
C income statement
D statement of financial position
R
17 Given the following figures, what is the company's gross profit?
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Revenue $22,000,000
Exceptional items $1,000,000
Cost of sales $14,000,000
Net dividend income

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$500,000
A $8,000,000
E
B $8,500,000
C $9,000,000
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D $9,500,000
M
18 A company returned a profit before interest and tax of $2 million based on sales of $7 million.
What is the interest cover for this company based on total interest payable of $1 million?
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A 2
B 5
C 6
D 7
19 The table below shows a company’s performance over the course of a year.
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Current assets ($) 5,400 5,600 5,000 5,200
Inventories/stock ($) 861 700 700 850
Current liabilities ($) 5,200 5,000 5,600 5,400
In which quarter was liquidity at its highest?
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A Quarter 1
B Quarter 2
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C Quarter 3
D Quarter 4
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20 The table below shows a company’s performance over the course of a year.
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Quarter 1 Quarter 2 Quarter 3 Quarter 4
Current assets ($) 6,500 6,300 4,800 5,200

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Inventories / stock ($) 861 720 700 835
Current liabilities ($) 6,200 5,000 5,900 5,400

M
When was liquidity at its lowest?

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A Quarter 1
B Quarter 2
C Quarter 3
D Quarter 4
21 Diversification assists the reduction of risk within a portfolio by:
A limiting the number of assets that can be held within a portfolio

B hedging the risk with the use of derivatives
C holding a mix of assets that respond differently to economic developments

D adopting a passive management strategy
R
22 A fund manager has produced a portfolio report for a client. Within the portfolio metrics was
the Sharpe ratio. It is important to include the Sharpe ratio in a portfolio report because it:
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A shows the amount of profit potential within the portfolio
B indicates the level of accrued capital gains
C measures the risk / reward of the portfolio

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D shows the amount of costs paid as a percentage of the portfolio value
E
23 To the nearest whole number, what is the time-weighted rate of return for a portfolio that
returns 7% in period 1 and 14% in period 2?
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A 7%
B 14%
M
C 16%
D 22%
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24 A higher Sharpe ratio relative to a benchmark indicates:
A effective active management

B strong benchmark correlation
C a well diversified portfolio

D high fund charges
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25 A centralised investment proposition allows investment managers to:
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A spend more time undertaking research
B charge higher levels of commission
C spend more time providing wealth management planning

PA
D provide individualistic investment advice to their clients
E
26 When a collective investment scheme is established in the contractual form, the investment
management company:
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A confers management to their trustees

B is contractually obliged to make predetermined returns
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C chooses the investors

D manages the portfolio on behalf of the investor
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27 A transfer agent:
A provides investors with specialist advice

B maintains the records of an investor's holdings
C disseminates share price information

D provides investors with access to financial news reports
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28 Why does the concept of a stockmarket bubble contradict an efficient market hypothesis?
PE
A Stockmarket bubbles are predictable using technical analysis
B Inside information is required to form a stockmarket bubble
C Stockmarket bubbles are formed through the use of all freely available information
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D Efficiently priced securities would not create a stockmarket bubble that later bursts
E
29 How could a fund manager eliminate diversifiable risk whilst adopting a passive fund
management style?
PL
A By beta hedging
B Through indexation
M
C Through the use of cost averaging

D By only investing in large cap stocks
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30 Cash flow matching is a passive form of fund management which aims to:
A replicate any major index

B profit from undervalued shares
C match future liabilities against bond redemptions

D match liabilities with company dividends
R
31 Why would central banks want to maintain a prolonged low interest rate during a financial
crisis?
PE
A Because investors will assume greater risk and invest more due to the fact they can afford
to suffer greater losses
B Because investors will assume greater risk and invest more in the search to obtain higher
yields
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C To encourage investors to invest more because they have more disposable income
D To encourage investors to invest more because they have had their tax burden lowered
E
PL
32 The credit rating afforded to a bond represents the:
A price of the bond

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B probability of repayments being made
C ease with which the bond can be traded

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D amount of the annual dividend

33 Central banks intervene in capital markets in order to support the functioning of the banking
system and credit market. What type of risk are they mitigating by so doing?
A Systematic risk
B Default risk
C Liquidity risk
D Systemic risk
R
34 A fund has an alpha measure of 2 and a beta score of 1.2. This means that the fund:
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A exceeded the benchmark index return by 2% and was 20% more volatile than the market
B exceeded the benchmark index by 20% and was 2% more volatile than the market
C performance was slightly worse than the overall market and was high in volatility
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D performed better than the market and demonstrated very low volatility
E
35 Which of these statements is true in connection with exchange and over-the-counter (OTC)
trading?
PL
A In OTC trading, valuation agents are sometimes employed to mark prices to market
B Exchange trading can be under the control of more than one central governing body
M
C Liquid instruments often trade OTC

D Central counterparty clearing is used only on exchange-traded markets
SA
36 What is the main benefit to traders in adopting Algo wheels?
A Faster trading speeds are facilitated

B They assist the traders in making price decisions
C They check pricing accuracy thus removing the possibility for error
D They enable compliance with best execution rules
R
37 The use of hedging techniques may sometimes be used by investors when accessing foreign
equity markets. Which of these financial instruments might be utilised?
PE
A Short-term interest rate futures
B Collateralised debt obligations
C Bank loans in the home currency of the investor

PA
D Forward contracts
E
38 Using the data below, what is the net profit margin of this company?
PL
Revenue 500,000
Cost of goods sold 248,000

M
Operating expenses 124,000
Finance costs 6,120

SA
Tax 23,347
A 19.7%
B 24.3%
C 25.6%
D 50.4%
39 This table illustrates the performance of four companies:
Company 1 2 3 4
Revenue ($) 750,000 850,000 1,000,000 1,200,000
Cost of sales ($) 350,000 500,000 700,000 800,000
Gross profit ($) 400,000 350,000 300,000 400,000
Distribution costs ($) 50,000 45,000 80,000 96,000
Administration 17,000 5,000 12,000 10,000

expenses ($)
R
PE
If every company employed $1,000,000 worth of capital which has the lowest return on capital
employed?
A Company 1
B Company 2
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C Company 3
D Company 4
E
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M
SA
40 This table summarises the financial position of four companies:
Company 1 2 3 4
Net operating profit after taxes 3,500,000 2,500,000 6,500,000 4,500,000
Weighted average cost of 4% 3% 6% 5%

capital
Total invested 3,000,000 2,500,000 4,000,000 7,000,000
Which company has the lowest economic value added performance?
R
A Company 1
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B Company 2
C Company 3
D Company 4
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E
Company 1 2 3 4
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Net profit margin 0.2 0.25 0.1 0.3
Asset turnover 1.3 0.8 2 1.4
Equity multiplier 1.6 1.8 2.5 1.8

M
Which company has the lowest return on equity?

SA
A Company 1
B Company 2
C Company 3
D Company 4
Company 1 2 3 4
Ordinary 100,000 150,000 150,000 100,000

shareholders
equity
Preference 200,000 200,000 150,000 50,000

shares
Interest 50,000 150,000 100,000 150,000

bearing debt
R
PE
Which company has the highest debt to equity ratio?
A Company 1
B Company 2
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C Company 3
D Company 4
E
43 This table shows equity investments held by four individuals:

PL
Upeksha Non-voting ordinary A shares
Kevin Deferred ordinary shares
Priya Participating preference shares

M
Sarah Redeemable preference shares

SA
Which statement in relation to dividends is correct?
A Upeksha and Kevin are entitled to the same level of dividend as an ordinary shareholder
B Kevin and Priya are entitled to dividends if the ordinary share dividend exceeds a
prespecified level
C Priya and Sarah are entitled to a fixed dividend
D Sarah and Upeksha are entitled to a lower dividend than ordinary shareholders
44 This table contains details of a company that has 3,000,000 ordinary shares in issue.
Net income 15,000,000
Preference dividends 700,000
Ordinary share price $108
Dividend per ordinary share $0.50
What is the earnings per share for this company?
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A 4.50
B 4.76
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C 5.00
D 5.23
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45 What is the dividend yield for this equity?
E
Net profit after tax 620,000
Share price 9.20

PL
Shares in issue 72,000
Earnings per share 0.67

M
Dividend 0.28
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A 0.04
B 2.39
C 3.04
D 7.28
46 Four separate companies report the following data:
Company 1 2 3 4
Revenue 900,000 875,000 925,000 995,000
Cost of goods sold 427,525 148,000 220,000 367,000
Operating expenses 238,000 182,000 282,000 328,000
Finance costs 100,000 17,000 250,000 12,000
Tax 25,550 100,320 32,870 54,720
R
Which company has the largest earnings before interest and tax?
PE
A Company 1
B Company 2
C Company 3
PA
D Company 4
E
47 What is the maximum level of income tax relief available for investors in venture capital trusts?
PL
A 20%
B 25%
M
C 30%
D 40%
SA
48 Why is private equity becoming popular among institutional investors?
A It is cheaper for institutions to invest in

B Institutions can avoid paying tax on private equity
C Private equity provides large tax free dividends to institutions

D It can have a lower correlation to traditional listed equity market movements
R
49 A company’s shares are trading at $10 and it wants to raise capital via an open offer. What is
the lowest price it is allowed to offer new shares to investors?
PE
A $8.00
B $9.00
C $9.50
PA
D $10.00
E
50 This table shows the current share price of four US companies and details of their bonus issues:
PL
Company 1 2 3 4
Share price 12 14 16 18
M
Bonus issue 5:3 7:5 4:1 5:2

SA
Which company should have the highest post-bonus share price?
A Company 1
B Company 2
C Company 3
D Company 4
51 Certificates of deposit are normally issued with a maximum maturity of:
A three months
B one year
C three years
D five years
R
52 This table shows details of four different bonds:
PE
Issuer 1 2 3 4
Coupon 4% 6% 7% 3%
Price 102 114 104 107
Years to 5 7
PA 6 4
redemption
Which bond has the highest running yield?

E
A Bond 1
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B Bond 2
C Bond 3
D Bond 4
M
SA
53 This table shows details of four bonds:
Bond 1 Bond 2 Bond 3 Bond 4
Coupon 4% 6% 5% 7%
Macaulay 2.8 2.82 2.9 2.7

duration
Gross 8% 5% 9% 8%
redemption yield
R
Which has the highest modified duration?
PE
A Bond 1
B Bond 2
C Bond 3
D Bond 4
PA
E
54 Bond STRIPs can be used to provide:

PL
A capital protection in structured products
B capital growth in structured products

C a fixed rate leg in a basis swap
M
D the floating rate leg in a basis swap

SA
55 A fund is considering purchasing a bond. This table shows the available options:
Bond 1 Bond 2 Bond 3 Bond 4
Coupon 6% 3% 5% 7%
Days of accrual 120 102 94 111
Days in the coupon 180 185 164 158

period
R
If each of these bonds has a clean price of 100 which would represent the highest outlay for a
cum-interest purchase of $250,000 nominal of bonds?
PE
A Bond 1
B Bond 2
C Bond 3
D Bond 4
PA
E
56 An inverted yield curve is an indication that:

PL
A the market expects interest rates to decline
B there is little difference between short and long-term rates

C longer-dated stocks yield less than shorter-dated stocks
M
D long-term interest rates are higher than short-term interest rates

SA
57 Which of the following is often used for management buyouts?
A Deferred equity
B Unsecured debt
C Mezzanine debt
D Secured debt
58 Which type of option can be exercised at anytime prior to its expiration date?
A American
B Asian
C Bermudan
D European
R
59 A delta of -1 implies that the option is:
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A a deep in-the-money call
B an at-the-money put
C a deep in-the-money put PA

D an out-of-the-money call
E
60 If an investor sells a currency future whilst simultaneously purchasing the same currency at the
spot rate, they are setting up:
PL
A a currency swap
B an interest rate swap
M
C a strangle
D a straddle
SA
61 A company has issued a convertible bond that can be converted into 25 ordinary shares per
$100 nominal. The convertible is currently priced at $101 and has a 7% coupon. The share price
is $3.70. What is the conversion premium?
A 7%
B 9%
C 11%
D 25%
R
PE
62 The degree to which an investment trust is trading at a discount is based on its relationship to:
A its issue price
B the underlying portfolio

C the annual yield
PA
D the industry average
E
63 Which type of Environmental and Social Governance bonds are used to raise finance for a
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combination of both green and social projects?
A Blue bonds
M
B Environmental bonds
C Impact bonds
SA
D Sustainability bonds
64 Which index is modelled on the S&P 500 Index and screened for Environmental and Social
Governance factors?
A Dow Jones Sustainability Indices
B FTSE4Good Indices
C MSCI KLD 400 Social Index
D MSCI Low Carbon Index
R
65 Which activity is used to verify cryptocurrency transactions?
PE
A Discounting
B Mining
C Netting
PA
D Reconciliation
E
66 Jane purchased a house in 2001 for $170,000. It is now valued at $650,000 and she could
receive $1,500 monthly rent with monthly expenses of $1,000.
PL
What is the gross rental yield on this property?
A 0.92%
M
B 2.77%
C 3.53%
SA
D 10.59%
67 Safaa purchased a house in 2001 for €170,000. It is now valued at €650,000 and she could
receive €1,500 monthly rent with monthly expenses of €1,000.
What is the net rental yield on this property?
A 0.92%
B 2.77%
C 3.53%
D 10.59%
R
PE
68 The Global Real Estate Sustainability Benchmark is aligned with the:
A International Valuation Standards Council Benchmark

PA
B Paris Climate Agreement
C Red Book Global Standards
D Task Force on Climate-related Financial Disclosures

E
PL
69 This table shows returns generated by a fund over a five-year period.
Year 1 2 3 4 5
M
Percentage 2 4 2 8 5
SA
What is the variance of this data set?
A 4.20
B 4.96
C 20.60
D 24.80
70 This table shows the standard deviation of two different assets:
Asset 1 7
Asset 2 12
If they have a correlation of 0.40 what is their covariance?
A 0.69
R
B 2.00
C 7.60
PE
D 33.60
PA
71 This table shows the value of a fund over a year.
Starting value $250,000

E
End value $320,000

PL
The fund had a $54,000 cash injection in March and a $60,000 withdrawal in September.
What is the money-weighted rate of return for this fund?
M
A 22%
B 23%
SA
C 28%
D 35%
72 What component of multi-factor models enables more factors to be considered than the
capital asset pricing model?
A Alpha
B Beta
C Gamma
D Delta
R
73 This table shows the performance of four funds over the same time period.
PE
Fund Performance Beta Standard
deviation
1 8% 0.90 5%
2 5% 0.95
PA 3%
3 11% 1.10 6%
4 4% 0.93 1%
E
If the risk-free rate of return is 2.5%, which fund has the lowest Sharpe ratio?
PL
A Fund 1
B Fund 2
M
C Fund 3
SA
D Fund 4
74 This table shows the performance of four funds over the same time period. It also shows their
expected performance according to the capital asset pricing model (CAPM).
Fund CAPM Performance
1 5% 7%
2 4% 5%
3 3% 7.5%
4 2% 4%
R
Which fund has the lowest Jensen’s alpha?
PE
A Fund 1
B Fund 2 PA
C Fund 3
D Fund 4
E
75 This table shows the performance of four funds over the same time period.
PL
Fund Performance Beta Standard deviation
1 8% 0.90 5%
M
2 5% 0.95 3%
3 11% 1.10 6%
SA
4 4% 0.93 1%
If the risk-free rate of return is 2.5%, which fund has the lowest Treynor ratio?
A Fund 1
B Fund 2
C Fund 3
D Fund 4
76 The table below shows the performance and composition of a benchmark:
Asset Allocation Return
Equities 60 7%
Bonds 40 2.5%
If a fund manager had chosen to invest $10,000,000 but with 70% in bonds and 30% in equities
then they would have:
R
A underperformed the benchmark by $135,000
PE
B underperformed the benchmark by $150,000
C outperformed the benchmark by $135,000
D outperformed the benchmark by $150,000

PA
77 Which of these firms specialises in tracking market reactions based on social network posts?
E
A Bloomberg
B Global Real Estate Sustainability Benchmarks

PL
C Morningstar
D SESAMm
M
SA
78 The table below illustrates the performance of a fund over a number of years:
6% 2% 2% 4% 2% 4% 5% 8% 3%
What is the range of the fund?
A 2%
B 4%
C 5%
R
D 6%
PE
79 If the covariance between two numbers is 50 and their standard deviations are 6 and 11. What
is their correlation?
PA
A 0.25
B 0.50
C 0.75
E
D 1.00
PL
80 If a broker sells shares ahead of an anticipated customer order then they are likely to fall foul
M
of regulations relating to:

SA
A churning
B front running
C inducements
D short selling
Question Number Answer Syllabus Reference

1 B 4.6.6
2 B 1.2.1
3 B 5.3.1
4 D 4.6.14
5 B 2.3.2
6 D 3.1.2
7 B 6.4.1
8 C 5.2.1
9 A 3.3.9
10 C 6.5.3
R
11 C 1.4.3
12 A 3.1.6
PE
13 A 3.1.1
14 C 4.7.1
15 A 5.1.1
16 C 3.1.4
17 A 3.1.4
18
PAA 3.3.8
19 B 3.3.10
20 C 3.3.10
21 C 2.2.2
22 C 2.2.5
E
23 D 6.5.3
24 A 6.7.1
25 C 1.2.2
PL
26 D 1.2.3
27 B 1.3.3
28 D 1.4.1
29 B 1.5.1
M
30 C 1.5.2
31 B 1.6.1
32 B 1.6.3
SA
33 D 2.3.1
34 A 2.3.3
35 A 2.4.6
36 D 2.4.4
37 D 2.5.2
38 A 3.3.4
39 C 3.3.5
40 B 3.3.6
41 B 3.3.7
42 A 3.3.8
43 C 4.1.1
44 B 4.1.2
45 C 4.1.2
46 B 4.1.4
47 C 4.3.1
48 D 4.3.2
49 B 4.4.1
50 B 4.4.2
51 D 4.5.1
52 C 4.6.7
53 D 4.6.8
54 A 4.6.10
55 D 4.6.11
56 A 1.6.1
57 C 4.7.2
58 A 4.8.1
59 C 4.8.2
60 A 4.9.1
R
61 B 4.6.13
62 B 5.1.2
PE
63 D 5.4.1
64 C 5.4.3
65 B 5.5.1
66 B 5.6.2
67 A 5.6.2
68
PA
B 5.6.4
69 B 6.4.2
70 D 2.2.3
71 C 6.5.2
72 B 6.5.4
E
73 B 6.7.2
74 B 6.7.4
75 D 6.7.3
PL
76 A 6.6.4
77 D 6.2.1
78 D 6.4.2
79 C 2.2.3
M
80 B 2.1.2
SA

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CHARTERED INSTITUTE FOR

SECURITIES & INVESTMENT

TIME ALLOWED: 2 HOURS

No copying of any part of this paper is permitted without the prior

© Chartered Institute for Securities & Investment

The exam is scored as follows:

A Investor A is a private investor and Investor B is a financial institution

C Investor A purchased £500 nominal and Investor B purchased £50,000 nominal

D Investor A is a UK resident and Investor B is a non-UK resident

wholly derivative based and feeder funds

throughout the European Economic Area

C 10% tax credit

D As regular income above the £50,000 threshold

A a buy and hold strategy

B an index tracking strategy

C a bond swap strategy

6 How are pre-payments classified and valued in the balance sheet?

D Open-ended investment company

C Research and development costs have no impact on a company's profitability

A All securities trade at a discount over time

B All security markets gravitate to their average return

D All identified securities are highly correlated with each other

13 How do the Companies Acts impose requirements on medium-sized companies in respect of

A It requires explanatory notes to accompany the cash flow statement

B It stipulates that a special auditors resolution accompanies the statement

D It compels the cash flow statement to be countersigned by an independent non-executive

15 Why is the total expense ratio important to investors? It:

A informs investors of the total annual charge for a fund

B defines the maximum bid and offer spread

C limits the amount a fund can charge investors

D defines the price at which units can be redeemed

16 How can the profitability of a company be documented? By using a:

Exceptional items $1,000,000

Cost of sales $14,000,000

Net dividend income

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Current assets ($) 5,400 5,600 5,000 5,200

Inventories/stock ($) 861 700 700 850

Current liabilities ($) 5,200 5,000 5,600 5,400

In which quarter was liquidity at its highest?

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Current assets ($) 6,500 6,300 4,800 5,200

Inventories / stock ($) 861 720 700 835

Current liabilities ($) 6,200 5,000 5,900 5,400

When was liquidity at its lowest?

21 Diversification assists the reduction of risk within a portfolio by:

A limiting the number of assets that can be held within a portfolio

C holding a mix of assets that respond differently to economic developments

B indicates the level of accrued capital gains

C measures the risk / reward of the portfolio

24 A higher Sharpe ratio relative to a benchmark indicates:

A effective active management

C a well diversified portfolio

C spend more time providing wealth management planning

A confers management to their trustees

C chooses the investors

A provides investors with specialist advice

C disseminates share price information

C Through the use of cost averaging

A replicate any major index

C match future liabilities against bond redemptions

32 The credit rating afforded to a bond represents the:

A price of the bond

B probability of repayments being made