Free CeMAP 1 Quiz Test Unit 1 Topic 6

1 / 19

What returns can be achieved on an investment into gilts?

A fixed rate of interest will be paid during the term and the investment can be sold at any time to realise capital

Both capital and income returns will accumulate and be payable free of all UK taxes

The capital will remain intact and interest will be added in line with prevailing interest rates

There is potential for high capital and income growth but the value of both may fluctuate in the short term

2 / 19

Which one of the following is LEAST likely to affect the price of gilts?

The time outstanding until redemption date

Current market interest rates

Anticipated changes in interest rates

The length of time it has been held for

3 / 19

The principle difference between corporate bonds and gilts is that corporate
bonds:

are available for larger amounts

usually pay variable rate interest

normally have no specified redemption date

are considered to be higher risk investments

4 / 19

Kevin has invested in undated gilt-edged securities. This means that:

the government will redeem the holding at anytime, if Derek requests it.

the government will pay no interest until the holding is sold.

he will have to sell them on the open market to access his capital.

the interest will be paid net of lower rate income tax.

5 / 19

What is ‘index-linked’ on an index-linked gilt?

The price throughout the term and the redemption price

The coupon rate only

The redemption price only

The coupon rate and the redemption price

6 / 19

Which one of the following client need areas are bank and building society
accounts BEST equipped to provide for?

Pension provision

Long term regular savings

Savings for those who want a guaranteed real return on their money

Rainy day money

7 / 19

A new gilt issue has been referred to as medium dated in the financial press,
however the UK Debt Management Office has described it as short dated. It will
therefore be for which of the following terms?

Eight years

Six years

Four years

Two years

8 / 19

Why would a client want to know the ‘coupon’ of a gilt?

It gives an indication of the total income and capital growth that can be expected

It is the purchase price required

It is the amount of capital that will be repaid

It is the interest rate and income payment that will be received

9 / 19

Which type of investment would be MOST suitable for a non-taxpayer requiring
monthly income with NO risk to capital?

National Savings Certificates

Gilts

An annuity

National Savings Income Bonds

10 / 19

Which one of Melinda’s needs would direct investment in gilts be UNABLE to
satisfy?

Income free of higher rate income tax

Return free of capital gains tax

Fixed income

Low risk investment

11 / 19

Which one of the following organisations issues permanent interest bearing shares?

Companies quoted on the London Stock Exchange

Building societies

The Bank of England

Local authorities

12 / 19

Income tax is not payable on which one of the following forms of income?

Income from local authority stocks

Inventor’s income from copyright or patent

Tips

Winnings on Premium Bonds

13 / 19

According to the financial press, the term to run before redemption under a
medium-dated gilt is between:

3 and 5 years

10 and 15 years

5 and 15 years

5 and 10 years

14 / 19

Which of the following statements in respect of gilts and local authority stock is true?

Gilts are negotiable and any gain may be subject to capital gains tax

Local authority stocks are not negotiable and carry a government guarantee

Interest on local authority stock is subject to capital gains tax

Interest on gilts is paid without deduction of income tax but is taxable

15 / 19

Which one of the following would be regarded as an advantage of a building
society savings account?

A high rate of interest reflecting the risks involved

The potential for capital growth with high risk

A tax-free return but no guarantee of performance

Regular interest payments and security of capital

16 / 19

What rate of capital gains tax, if any, would a basic rate taxpayer be liable to on gains made from gilts?

20%

22%

18%

Nil

17 / 19

Larry owns £5,000 of premium bonds. Which one of the following is FALSE?

His recent £1,000 winnings are tax-free

The maximum investment in premium bonds is £25

There is no interest rate paid on premium bonds

He may purchase another £15,000 of bonds

18 / 19

What is the maximum total investment into Premium Bonds?

£20,000

£30,000

£3,600

£50,000

19 / 19

A key difference between a debenture and a loan stock issued by a company is
that a debenture:

is usually secured on the assets of the company.

holder has the right to vote at the company’s annual general meeting.

pays a fixed rate of interest

can be converted to ordinary shares in the company.

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