Qualified Financial Adviser (QFA) Investments Exam 2 Practice Test

These questions are part of the practice quiz. Start practicing

• If a preference share is said to be 'non-cumulative' this means that the:
• If two investments have a positive correlation, when one increases in value, the other tends to:
• In a car lease, who typically holds ownership during the term?
• What should ongoing client reviews include to ensure effective advisory oversight?
• Which statement accurately describes the difference between a managed fund and an ETF?
• Which of the following statements is true about the 2020 personal tax credit for a married couple?
• Which risk is associated with inflation eroding purchasing power?
• What does the expectations theory imply about the yield curve when investors expect higher future rates?
• What primarily determines the cost of currency hedging?
• A company's issued share capital is the:
• A life company must take which action when a prospective unit-linked investor does not provide a tax reference number on the application form?
• Which advertising material is NOT subject to CPC advertising requirements for a life assurance company?
• Which statement best describes a perpetual bond?
• A bond trading above par is described as trading at a premium. What is the correct term in this case?
• In capital gains tax, which statement is correct regarding disposal costs?
• In the Black-Scholes framework, which distribution assumption is made about stock price returns?
• Bob has already used up half of his 2020 annual capital gains tax exemption, but has realised a new chargeable gain of €10,000. What capital gains tax liability therefore applies in respect of this gain, assuming he makes no other asset disposals in 2020?
• Real return is defined as nominal return minus inflation. Which hedging options are commonly used to protect real returns?
• Which statement best describes the relationship between Macaulay duration and modified duration?
• Under an early encashment schedule where the charge is 5% in year 1 and reduces by 1% at the end of each year, what is the charge in year 3?
• A company's dividend for this year will cost €1.5m. Its profits before taxes are €3.8m and after taxes €3.3m. What is the company's current dividend cover?
• Which type of company is NOT required to have a Memorandum or Articles of Association?
• For a life company to describe its Tracker Bond as 'guaranteed', the MINIMUM requirement under the Consumer Protection Code is that the:
• What information does the term structure of interest rates provide?
• In relation to deposits, the term AER means the:
• Sean has invested €150,000 in Savings Certificates over a number of years. What amount of this investment is guaranteed by the Irish Government?
• Which statements describe the investment risks of a Tracker Bond? (i) lack of access to funds during the term; (ii) return less than the rate of inflation; (iii) unlimited losses if the index falls.
• Which statement best describes dollar-cost averaging in terms of its long-term behavior?
• An investor with 2,300 units and an early encashment charge of 5% in year one that reduces by 1% each year has a unit price of €1.87 in year 3. What is the encashment value in year 3?
• Which of the following would NOT be considered an example of an alternative investment class?
• Which factors influence the price of a stock?
• What are credit spreads and how do they affect bond valuations?
• Deflation can be caused by which of the following?
• In MiFID terms, which market is considered a regulated market?
• MiFID conduct of business rules apply when advising clients on: which combination?
• Where CPC's execution-only provisions apply to an investment transaction, the adviser involved is required to:
• Which of the following is the minimum investment in a Qualifying Investor AIF?
• If profits after tax are €4.8m and dividends paid are €2.4m, what is the dividend cover?
• Which type of bond would you expect to be easiest to sell rapidly to raise cash?
• Execution-only means which of the following?
• Which statement about inflation's effect on real return is true?
• Which term is another name for default risk?
• Rents from foreign property are assessed for income tax under which Schedule?
• What is the difference between gross and net returns?
• A PLC whose shares are not listed on a stock exchange is described as:
• What is a bond?
• Which statement best defines real return and its use in adviser decisions?
• A deposit Tracker Bond with 100% capital guarantee and a 10% maturity bonus on €100,000 will have a maturity value before tax?
• If the average gross dividend yield offered by equities is 3% per annum and the gross guaranteed annual yield offered by long-term government bonds (assumed to be risk free) is 2% per annum, the yield gap at this time is:
• Which statement best explains why yield to maturity (YTM) and current yield are different for most bonds?
• The benefit in kind (BIK) for a company car is liable to which taxes?
• The benefits offered by the Treasury Bond to Peter are: (i) income not subject to DIRT; (ii) loss on sale offsettable for capital gains tax; (iii) gain on sale liable to a reduced capital gains tax rate of 20%. Which statements are true?
• Rental income from an Irish property is classified as:
• How is liquidity defined in asset selection and why is it important?
• Which statement describes how the Sharpe ratio is used?
• Treasury Bonds are issued on behalf of the Irish Government by which entity?
• Maire bought shares listed on the Irish Stock Exchange through a stockbroker. The shares are held in the stockbroker's nominee company. Who is the legal owner of these shares?
• The benefits of increased international trade include which of the following?
• Investors in an Exchange Traded Fund that does not hold the actual securities to match the index it tracks are exposed to which type of risk?
• Credit Union share accounts pay dividends which are:
• What is the primary purpose of stress testing in risk management?
• How is a portfolio's tracking error calculated and what does it signify?
• The self-employed who do not pay income tax under PAYE pay an additional USC of 3% on income in excess of which amount?
• Which category best describes the instrument that includes Credit Union share accounts among the options below?
• ACE Enterprises has issued 23,400,000 ordinary shares at a nominal value of 20c each. The current share price on the stock market is €1.75. What is the company's current market capitalisation?
• If a bond is said to be callable on 1 May 2024, this means:
• Compared with equities, property as an investment is typically characterized by which of the following?
• In SAYE, the CCSS element is taxed as which option?
• Irish REIT restrictions include which combination of requirements?
• Which statement is true regarding active vs passive management and costs?
• A bond maturing in 2030 with a coupon rate of 4% and price €85 has exactly 10 years to maturity. What is its annual gross redemption yield?
• In the Save As You Earn (SAYE) example for ABCO, what is the minimum share price at which participating employees can buy shares?
• Which statement accurately contrasts pass-through tax regimes with corporate tax regimes for investments' after-tax yield?
• Which of the following is NOT a stated investment product in the material?
• What is the final step in the financial planning advisory process?
• A call option gives the holder the right to which action?
• If a unit-linked fund earns 5.5% before charges and the annual management charge is 0.75%, by how much will the unit price increase?
• Which of the following is NOT typically a cost associated with actively managed funds?
• Which statement about the efficient frontier is true?
• Home loan borrowers on a standard variable rate mortgage are subject to which type of investment risk?
• Which describes a real investment return?
• The National Solidarity Bonds offer which two different investment terms?
• Which statement about wash-sale rules is true?
• Which one of the following can NOT reclaim DIRT deducted from deposit interest?
• The price-earnings ratio is calculated as which of the following?
• Which of the following options correctly identifies the CGT annual exemption scenario for a share sale in 2020?
• In a UCITS fund, which entity is primarily responsible for safekeeping the fund's assets?
• Which measurement includes the value of goods and services produced by Irish firms operating in foreign countries?
• In currency hedging, when is hedging most effective for managing currency risk?
• Which statement best defines a risk overlay in portfolio management?
• Which of the following produced by a life assurance company is NOT subject to the Consumer Protection Code advertising requirements?
• The normal deposit interest retention tax (DIRT) rate applied to deposit interest earned by individuals in 2020 is:
• Which one of the following depositors in an Irish established bank is NOT covered by the Irish Deposit Guarantee Scheme?
• Which item represents a typical focus during monitoring IPS?
• What would be the total expected return on equities given a dividend yield of 3% and capital growth of 2%, with a risk‑free rate of 2%?
• What is the primary purpose of DIRT as described for 2020?
• Which description best defines duration in fixed income?
• Which investment instrument is described as having a government guarantee of the investment?
• What is cash flow yield and how does it differ from price/yield?
• Under the 2020 Revenue reporting threshold for gross interest, which amount triggers reporting?
• The control of the magnitude of the money supply in the economy is which type of economic policy?
• A company is overdrawn on its current account with the bank. The amount overdrawn is shown in a company's balance sheet as:
• A deposit Tracker Bond with 100% capital guarantee and a 10% maturity bonus on €100,000 yields what amount of DIRT on a €100,000 investment (assuming no exemptions)?
• Which description best characterizes value investing versus growth investing and when each may be suitable?
• The process of matching various financial products to a client to achieve the best fit is known as
• Issued share capital is the nominal value of shares actually issued to shareholders.
• The risk that a particular investment’s value is affected by company-specific events is called which type of risk?
• Which of the following is a tax-efficient investing strategy?
• Mary has entered a lease arrangement with a financial institution for a car. Which statement is correct?
• What is the primary difference between liquidity preference theory and expectations theory in shaping the yield curve?
• Which statement best describes the tax treatment of the capital gain on sale of a Treasury Bond?
• Which statement about closed-end funds is true?
• Dividend withholding tax is applied in 2020 to dividends paid by Irish companies to Irish residents at which rate?
• What is the corporation tax rate applied to trading profits in 2020?
• Which of the following is NOT typically listed as a main risk type for an investment portfolio?
• The company car benefit-in-kind (BIK) is liable to which taxes?
• Aoife received €1,000 gross interest in 2020 from a deposit account held with a bank in Cork. For USC purposes, this deposit interest is:
• Aoife, a self-employed investor, realises a €10,000 capital gain on a Luxembourg-based ETF; as a higher-rate taxpayer, what is the tax liability on this gain?
• Which factor is not typically used to determine a stock's price?
• ABC Ltd. is expected to pay a total gross dividend of 40c per ordinary share in respect of its 2020 financial year. If the company's current share price is €9.70, what is the share's prospective gross dividend yield?
• Which of the following is always structured as a financial co-operative?
• A company issued to shareholders 1,000,000 shares with a nominal value of €1 each at a price of €0.40 each. If the company winds up with a deficit, what additional amount, if any, can the shareholders be called on to pay to the company?
• Which statement best distinguishes liquidity preference theory from expectations theory in shaping the yield curve?
• A company pays a dividend of €0.40 per share to shareholders in March 2020 in respect of its financial year ended 31st December 2019. This payment is called which type of dividend payment?
• A civil partner couple can be exempted from DIRT in 2020 only if: (i) at least one of them is over age 65. (ii) their combined total income for 2020 is less than €36,000. (iii) their total deposits with all deposit takers does not exceed €200,000.
• MINIMUM proportion of the shareholders present and entitled to vote at a meeting required to pass a special resolution to amend the company's Articles of Association at that meeting?
• Jack is self-employed, aged 56, and earns €1,000 gross deposit interest in 2020 which is subject to DIRT. He has no other investment income. What PRSI liability, if any, does Jack have on this gross deposit interest for 2020?
• Which statement describes risk-adjusted performance metrics beyond the Sharpe ratio?
• Which risk is Jackie, who saves monthly in a unit-linked savings plan, least exposed to compared with Mark, who plans a lump-sum investment in the same fund?
• In their Key Investor Information Document, UCITS funds are graded by risk and reward into how many different categories?
• In the financial planning advisory process, which step comes third?
• Which formula correctly defines gross dividend yield?
• Which statement best describes a designated activity company (DAC)?
• The Reason Why statement required by the Central Bank's CPC must be provided to a client
• Which risk refers to the ease with which an asset can be sold without affecting its price?
• A gross income distribution from an Irish collective investment fund is €2,500 under gross roll up taxation. What amount will be received into the investor's hands?
• Which statements apply to an Irish REIT?
• What is the Efficient Market Hypothesis (EMH) and its implications for active vs passive investing?
• Which policy describes the control of the money supply?
• Which of the following deflation rates is correct from the CPI example given?
• Which statement about diversification and risk is true?
• An ETF that uses synthetic replication and does not hold the underlying securities exposes investors to which risk?
• If the expected dividend return from equities is 3% per annum, the expected capital growth return from equities is 2% per annum, and the current long term Government bond yield is 2% per annum, the current equity risk premium is:
• Which asset types are commonly used to hedge against inflation?
• A corporate bond that pays no interest and only promises to pay a capital amount at maturity is called what type of bond?
• Which statement correctly describes using futures for hedging?
• In 2020 the personal tax credit for a married couple is:
• Which statement describes intrinsic value and time value for options?
• What is the purpose of factfinding in the financial planning process?
• If an investment of €1,000 made today grows at 3% per annun over the next 15 years, what amount will it have accumulated to after 15 years, using the supplied factors?
• What does fund turnover measure and how does it affect taxes and costs?
• What does AER stand for in relation to deposit products?
• Which risk is the risk that a bond issuer may fail to repay principal at maturity?
• The price at which investors are currently willing to buy shares listed on a stock exchange is called the:
• Which statement best describes ETF versus traditional mutual funds in terms of fees and trading?
• The standard deviation of investment returns is a measure of which?
• What is the Sharpe ratio and how is it used?
• When providing information on simulated performance on an investment product:
• What components comprise the all-in cost of an investment fund?
• If two investments tend to move up and down in value at the same rate over time, these investments are said to have which type of correlation?
• If a hedge fund is said to be 'shorting' shares in a company, this means the fund is:
• In Ireland, the financial services market enables providers to collect surplus funds as savings and lend them at a margin to which groups?
• If the market price-earnings ratio is 10 and a company's P/E ratio is 12, what does this indicate about the market's expectations for the company's future earnings relative to the market?
• Which statements correctly describe the relative advantages of offshore collective investment funds compared with direct investment in stocks and shares? (i) Lower dealing costs (ii) Less administration (iii) More control over individual stock selection.
• A share purchase valued at €2,000 would incur stamp duty of:
• Which item is NOT listed as a risk of investing in a Tracker Bond?
• Life cover on a unit-linked savings plan is funded by which mechanism?
• What is risk budgeting in portfolio management?
• When evaluating a fund's track record for future potential, which factors should be considered?
• Which of the following is NOT a deflation cause?
• Which statement best describes currency hedging in international investing?
• A bank is required in 2020 to automatically return to Revenue details of all existing deposit holders, where gross interest of more than what amount has been credited to their accounts in 2020?
• Which of the following is a limitation of the Black-Scholes option pricing model?
• Which statement best describes how advisers should use credit ratings?
• What does the efficient frontier represent in modern portfolio theory?
• Inflation-linked bonds are particularly attractive in which environment?
• €100 nominal value of a bond is currently being traded on the market at €125. This bond is said to be:
• An Exchange Traded Fund (ETF) is:
• Inflation-linked bonds adjust which components to reflect changes in inflation?
• If the CPI one year ago was 135.3 and today it is 130.6, what has been the rate of deflation over the past year?
• What is a primary practical difference between overlay management and changing asset allocation?
• Gross National Product (GNP) differs from Gross Domestic Product (GDP) in that GNP includes the value of goods and services produced by a country's residents outside the country.
• Which statement about beta interpretation is correct?
• Jack has just signed up to save €200 per month in the National Instalment Savings Plan. In order for Jack to get the maximum guaranteed return under the Plan, how many years from now must he stay invested?
• A closed-end investment fund has which of the following characteristics?
• A UCITS fund can NOT invest directly in which of the following?
• Overlay management is typically used to achieve hedging and risk controls, such as currency hedging, without altering the core asset mix.
• Which statement best describes front-end loads?
• What rate of income tax relief can a higher rate taxpayer obtain in 2020 on an investment made in 2020 in an Employment and Investment Incentive (EII) scheme?
• All assets of a UCITS fund are held on behalf of the fund investors by which entity?
• Which components constitute the cost of capital in a typical firm valuation framework?
• Which amount would €1,000 grow to after 15 years, at 3% per annum, based on the example?
• In a unit-linked fund, if the fund earns 4.0% before charges and the annual management charge is 1.0% per year, by what percentage will the unit price increase that year?
• A deposit Tracker Bond that is described as a 'Fixed term' deposit corresponds to which category?
• Investment firms are also known as which type of firm?
• Which market is a regulated market for MiFID purposes?
• Dollar-cost averaging involves investing a fixed amount regularly. Which statement best describes its effect?
• Alan bought shares for €10,000 with 2% acquisition costs and sold them in 2020 for €25,000, with 1% disposal costs. After using his CGT annual exemption earlier in 2020, what is the chargeable gain for CGT in 2020?
• What does convexity represent and why is it important for bond investors?
• What does the acronym WACC stand for?
• What is the primary purpose of tax-loss harvesting?
• Which item is a typical component of an investor policy statement (IPS)?
• What is the MINIMUM investment in a Qualifying Investor AIF?
• Aileen receives 4% per annum as automatic income from a unit-linked bond. This means she:
• For taxable investments, after-tax return is calculated as what?
• Define alpha and interpretation for performance evaluation.
• Which statement about zero-coupon bonds relative to coupon bonds with the same maturity is true?
• Which type of share typically carries the right to a fixed dividend ahead of ordinary shareholders?
• The main difference between a deposit broker and a deposit agent is that the deposit broker can:
• In international investing, which statement best describes currency risk and hedging?
• What is the role of scenario analysis in portfolio construction?
• Which asset class is listed among traditional asset classes in the material?
• When is currency hedging most likely to be cost-effective for an investor?
• Which investment product is depicted as having the potential for guaranteed returns with monthly contributions, as described in the material?
• What is the equity risk premium defined as in the material?
• Which of the following would be considered traditional investment asset classes?
• Which combination of characteristics describes the advantages of offshore collective investment funds compared with direct stock investments? (i) Lower dealing costs (ii) Less administration (iii) More control over stock selection.
• Which statement about diversification is true?
• What is Monte Carlo simulation used for in investment planning?
• What is the purpose of a benchmark in performance evaluation?
• Which statement about convexity is true?
• Which description best characterizes overlay management in portfolios?