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ABA CTFA Exam Practice Questions (P. 2)

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Question #11
Simon has experience of dealing with retail clients and is now in training to qualify as a pension transfer specialist. As a consequence, which of the following statements are true?
  1. A
    He must have at least 3 years experience as an adviser before his training can commence
  2. B
    His firm is allowed to impose a time limit on completion of the qualification
  3. C
    His supervisor must also be suitably qualified
  4. D
    Once qualified, CPD requirements are waived for 12 months
  5. E
    Once qualified, records of his training must be maintained for at least 5 years

Correct Answer:
BC

Question #12
The efficient frontier curve shows the optimum balance between:
  1. A
    Risk and return
  2. B
    Return and taxation
  3. C
    Taxation and risk
  4. D
    Inflation and return

Correct Answer:
A

Question #13
A UK investor holds a portfolio of overseas equities and is concerned about the exchange rate risk. Which strategy could he use to mitigate this risk?
  1. A
    Arbitrage
  2. B
    Gearing
  3. C
    Hedging
  4. D
    Pound cost averaging

Correct Answer:
C

Question #14
When constructing a portfolio for a UK resident basic-rate taxpayer who requires an income, the most tax efficient solution would be achieved by:
  1. A
    Only investing in offshore products
  2. B
    Holding fixed-interest funds within a stocks and shares ISA
  3. C
    Purchasing National Savings & Investments (NS&I) Fixed-Interest Savings Certificates
  4. D
    Holding high-yielding equities within a stocks and shares ISA

Correct Answer:
B

Question #15
The principal reasons for using the Sharpe ratio when calculating a portfolio's performance are:
  1. A
    It indicates the percentage return above/below the risk-free rate for each unit of risk taken
  2. B
    It will always be quoted on a rolling quarterly basis
  3. C
    A positive Sharpe ratio will always guarantee positive returns
  4. D
    The higher the number, the more a portfolio manager can be said to have added value

Correct Answer:
AD

Question #16
Pauline, a basic-rate taxpayer, has a portfolio which comprises of various equity and fixed-interest unit trusts and OEICs. She should be aware that:
  1. A
    Any losses from this portfolio are allowable for Capital Gains Tax calculations
  2. B
    Her entire portfolio will be subject to a 10% tax credit
  3. C
    Only the proceeds of sale from the OEICs could be subject to Capital Gains Tax
  4. D
    The taxation of dividends on the OEICs held will be treated the same way as the unit trusts
  5. E
    She can never reclaim any tax deducted at source

Correct Answer:
AD

Question #17
Philip took out a qualifying onshore endowment policy for 20 years which he made paidup in year 9. This means that he may become personally liable to tax on the policy proceeds:
  1. A
    At maturity
  2. B
    If he makes a partial surrender
  3. C
    If he assigns the policy to his wife
  4. D
    On settlement of a critical illness claim

Correct Answer:
AB

Question #18
Bill, a single man, having made full use of his annual gift allowances, made a potentially exempt transfer of £100,000 four and a half years before his death. He has made no other gifts. His residual estate is now valued at £500,000. The Inheritance Tax liability at death is:
  1. A
    £30,000
  2. B
    £46,000
  3. C
    £94,000
  4. D
    £110,000

Correct Answer:
D

Question #19
On Brian's death, his estate was valued at £820,000. He bequeathed £40,000 to a registered charity and split the balance equally between his registered civil partner and his brother. Assuming he made no lifetime transfers, what will the Inheritance Tax liability be?
  1. A
    £22,750
  2. B
    £26,000
  3. C
    £29,750
  4. D
    £34,000

Correct Answer:
B

Question #20
Trevor is a member of a defined benefit company pension scheme. Which factor relating to his circumstances confirms that he will avoid incurring a special annual allowance charge in the current tax year?
  1. A
    He is a member of an Employer Financed Retirement Benefit Scheme (EFRBS)
  2. B
    He is aged 61
  3. C
    His total annual earnings have never exceeded £110,000
  4. D
    His benefits include the maximum level of death benefit

Correct Answer:
C

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