Free CeMAP 1 Quiz Test Unit 1 Topic 6

1 / 19

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

Income from local authority stocks

Winnings on Premium Bonds

Inventor’s income from copyright or patent

Tips

2 / 19

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

Regular interest payments and security of capital

The potential for capital growth with high risk

A high rate of interest reflecting the risks involved

A tax-free return but no guarantee of performance

3 / 19

What is the maximum total investment into Premium Bonds?

£20,000

£30,000

£50,000

£3,600

4 / 19

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

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

Rainy day money

Long term regular savings

Pension provision

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

It is the amount of capital that will be repaid

6 / 19

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

Current market interest rates

The time outstanding until redemption date

Anticipated changes in interest rates

The length of time it has been held for

7 / 19

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

An annuity

National Savings Certificates

Gilts

National Savings Income Bonds

8 / 19

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

Building societies

The Bank of England

Local authorities

Companies quoted on the London Stock Exchange

9 / 19

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

normally have no specified redemption date

are considered to be higher risk investments

usually pay variable rate interest

are available for larger amounts

10 / 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 local authority stock is subject to capital gains tax

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

11 / 19

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

The redemption price only

The coupon rate only

The price throughout the term and the redemption price

The coupon rate and the redemption price

12 / 19

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

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

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

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

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

13 / 19

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

Low risk investment

Return free of capital gains tax

Fixed income

Income free of higher rate income tax

14 / 19

What returns can be achieved on an investment into gilts?

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

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

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

15 / 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

Six years

Two years

16 / 19

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

5 and 15 years

3 and 5 years

5 and 10 years

10 and 15 years

17 / 19

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

His recent £1,000 winnings are tax-free

There is no interest rate paid on premium bonds

He may purchase another £15,000 of bonds

The maximum investment in premium bonds is £25

18 / 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.

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

pays a fixed rate of interest

is usually secured on the assets of the company.

19 / 19

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

22%

20%

Nil

18%

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