Free CeMAP 1 Quiz Test Unit 1 Topic 6

1 / 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?

Four years

Eight years

Two years

Six years

2 / 19

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

National Savings Certificates

National Savings Income Bonds

An annuity

Gilts

3 / 19

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

The price throughout the term and the redemption price

The redemption price only

The coupon rate and the redemption price

The coupon rate only

4 / 19

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

Fixed income

Low risk investment

Return free of capital gains tax

Income free of higher rate income tax

5 / 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 interest will be paid net of lower rate income tax.

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.

6 / 19

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

Local authority stocks are not negotiable and carry a government guarantee

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

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

Interest on local authority stock is subject to capital gains tax

7 / 19

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

can be converted to ordinary shares in the company.

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

8 / 19

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

are considered to be higher risk investments

usually pay variable rate interest

are available for larger amounts

normally have no specified redemption date

9 / 19

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

5 and 10 years

5 and 15 years

10 and 15 years

3 and 5 years

10 / 19

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

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

It is the purchase price required

It is the amount of capital that will be repaid

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

11 / 19

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

There is no interest rate paid on premium bonds

He may purchase another £15,000 of bonds

His recent £1,000 winnings are tax-free

The maximum investment in premium bonds is £25

12 / 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

Rainy day money

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

13 / 19

What is the maximum total investment into Premium Bonds?

£20,000

£3,600

£50,000

£30,000

14 / 19

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

20%

Nil

22%

18%

15 / 19

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

Local authorities

Companies quoted on the London Stock Exchange

Building societies

The Bank of England

16 / 19

What returns can be achieved on an investment into gilts?

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

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

17 / 19

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

Anticipated changes in interest rates

The length of time it has been held for

Current market interest rates

The time outstanding until redemption date

18 / 19

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

Inventor’s income from copyright or patent

Income from local authority stocks

Winnings on Premium Bonds

Tips

19 / 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

A tax-free return but no guarantee of performance

The potential for capital growth with high risk

Regular interest payments and security of capital

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