Free CeMAP 1 Quiz Test Unit 1 Topic 8

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Jack is currently a higher rate taxpayer with 5 years to go before retirement. He has an investment bond that he is using to save for his retirement, when he expects his income to drop significantly. What
feature of this product might he find especially useful when he has retired?

Withdrawals of any amount can be made free of tax, at any time

The 5% annual allowance for withdrawals can be carried forward to future years.

He can split the bond into smaller policies for tax-free encashment at any stage

He can switch investment funds within the bond at low or no cost

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which one is NOT a responsibility of a unit trust fund manager?

To buy back units from clients when they wish to sell

To establish the cancellation price of units

o ensure that the trustee complies with the trust deed

To manage the trust fund’s investments

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Which one of the following is TRUE of open-ended investment companies
(OEICS)?

There is no initial charge

Switches are made on a mid-price basis

The initial charge is included in the bid/offer spread

Shares are bought and sold at the same price on any given day

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If the shares of an investment trust stand at a discount below the net asset value per share, which one of the following is CORRECT?

Capital growth will be negligible

A minimum level of capital growth is guaranteed

Capital growth is potentially higher than direct investment

Income growth is forsaken for capital growth

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Gains made within an investment trust are subject to what tax, if any, in the hands of the fund managers?

Corporation tax

None

Capital gains tax

Basic rate tax

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Who is responsible for paying capital gains tax from unit trusts to HMRC?

The fund managers

The unit holder

The unit trust company

The trustees

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Why does investment in a collective investment scheme carry a reduced
risk when compared with direct investment in equities?

Collective investments must guarantee as a minimum, the return of capital invested

because fund managers can negotiate higher dividend payments

collective investment schemes invest in equities that are not available to individuals

because collective investment schemes invest in a large number of different companies

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In a unit trust, what does the cancellation price signify?

The price applicable to investors if they cancel during the cooling-off period.

The minimum price at which investors may cash in their units.

The price at which the manager will buy back units if underlying assets do not have to be traded.

The maximum price at which a full encashment of the units may be made.

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What is the MAXIMUM amount, if any, that an individual can invest in an investment trust in any one tax year?

£6,000

£3,000

Unlimited

£9,000

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At what rate would capital gains tax be charged on gains made on the sale
of a unit trust investment by a higher rate taxpayer?

18%

10%

20%

22.5%

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Which of the following is true in relation to the manager of an investment trust?

He can borrow to improve income and capital growth

he can cancel units if the fund grows sharply

He can issue more units or repurchase units according to demand

He cannot borrow funds

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Which one of the following describes MOST investment bonds

A regular premium, unit linked, qualifying whole-of-life assurance

A single premium, unit linked, qualifying whole-of-life assurance

A single premium, unit linked, non-qualifying whole-of-life assurance

A regular premium, unit linked, non-qualifying whole-of-life assurance

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Among the following statements regarding a unit trust, which one is correct?

Any gain made on the sale of units by an investor may be liable to capital gains tax.

The price at which an investor purchases units in the fund is referred to as the bid price.

An investor who requires mainly capital growth will be best advised to purchase distribution units.

The fund manager is able to borrow.

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Which of the following statements is NOT true about unit trusts?

They will always provide a high rate of return in the short term.

They can be used to provide a balance of regular income and capital growth.

They can be used to plan for school fees.

They should be viewed as a long-term investment.

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Non Structured Capital at risk products normally provide a minimum return of:

50% of the initial capital invested

85% of the initial capital invested

Nothing

100% of the initial capital invested

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Which one of the following is NOT a feature of open-ended investment
companies (OEICS)?

New funds are easily created

Many types of share may be included

Investments are pooled

The number of shares issued is restricted

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Unit trusts are subject to strict governance through a set of terms. In which document are these terms defined?

Trust Deed

Contract Note

Contract Letter

Trust Certificate

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David has an investment bond issued by a life office, invested in their managed fund. At what rate is the provider’s underlying fund taxed?

22%

40%

20%

18%

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Which one of the following BEST describes an investment trust?

A trust which invests solely in shares in the Alternative Investment Market

A unit linked single premium non-qualifying whole-of-life policy investing solely in shares

A company which invests in shares of other companies

A partnership which invests in gilt-edged securities

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charges on unit trusts have typically included:

an annual management charge only

an annual management charge and a policy fee

a bid-offer spread only

a bid-offer spread and an annual or monthly management charge

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What does the term 'open-ended' refer to when managing unit trusts?

That the fund manager can create more units

That there is flexibility in the taxation arrangements of units

That the fund manager does not need to value the units

That clients can buy more units

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What is the term used for the regular payments made out of investment trusts?

Dividends

Allocations

Coupons

Distributions

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Unit trusts, investment trusts and open ended investment company shares
are suitable for which profile of investor?

A low-risk investor who requires a guaranteed income

A long-term investor who is happy to give notice to withdraw funds

A long-term investor who would still like reasonably easy access to funds

A high-risk investor who likes to play the stock market

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Tom a higher rate taxpayer, has a single premium investment bond. How will any capital gains be treated?

Tom will pay an extra 20% income tax on encashment of the bond

The insurance company charges Tom for the gain

The insurance company bears the entire capital gain tax burden

Tom will pay inheritance tax at 20% on taxable gains that are made