Qualified Financial Adviser (QFA) Investments Exam 1 Practice Test

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• Which item would be classified as a current asset on a balance sheet?
• Geoff has asked Peter to arrange a Tracker Bond investment for him on an execution- only basis. What warning, if any, MUST Peter give to Geoff in writing?
• Which investment type has shown the highest volatility of returns over the longer term?
• The activities of the Central Bank of Ireland are managed and controlled by which body?
• What is asset location?
• ABC Advisors Ltd is advising Alison on the investment of a large compensation lump sum. Under the Consumer Protection Code, ABC is required, when dealing with Alison, to:
• Monetary policy in the EU countries who are members of the Eurozone is under the control of the:
• When shares are issued at a premium above nominal value, the excess amount is recorded in which reserve?
• Which of the following is typically a current liability on a balance sheet?
• Under the Consumer Protection Code, which statement must ABC state in an advertisement for a Tracker Bond maturing in seven years?
• If a fund aims to outperform a stock market index, which investment management style is it adopting?
• Why is diversification important for a portfolio?
• A tracker bond's maturity bonus may be subject to which tax?
• Margaret, a higher rate taxpayer, sells some shares in June 2020 and has a chargeable gain of €6,700. How much Capital Gains Tax will she be liable for if this is her only asset disposal in 2020?
• If two assets are perfectly negatively correlated, the portfolio variance can be which of the following as you mix them in equal weights?
• What is a benchmark and why is it used?
• Michael, an Irish resident, is entitled to a gross dividend of €1,000 from an Irish resident company. What amount of tax must the company currently deduct from this dividend before payment?
• Which statement BEST describes the gross dividend yield of a company's share?
• A company has 1,000,000 issued ordinary shares with a nominal value of €1 each, issued at €1.75. If the current share price is €3.75, what is the company's current market capitalisation?
• Which of the following funds provides diversification between the main asset classes?
• Alternative Investment Funds are:
• What is a mutual fund's turnover ratio and why does it matter?
• Which would offer investors the highest level of protection against inflation over the longer term?
• 4.6.2 Exemption from DIRT: Which combination yields exemption from DIRT in 2020?
• Dividends from credit union share accounts are treated for DIRT as if they were deposit interest.
• Which authority approves SAYE schemes?
• An Exchange-Traded Fund (ETF) is:
• Maturity transformation in relation to financial services is:
• How do inflation and real returns relate?
• Salary and wages arising from employment are assessed to income tax under Schedule which option reflects the correct choice given in the material?
• Which statement regarding EMH and information-based trading is most accurate?
• Under a SAYE scheme, if an employee exercises their option to buy shares and sells immediately for a profit, what tax applies after the annual exemption?
• Which of the following combinations correctly identifies the Irish Stock Exchange markets that are NOT MiFID-regulated?
• If the Consumer Price Index one year ago was 142.5 and today it's 148.4, what has been the rate of inflation over the last 12 months?
• Differentiate between systematic and unsystematic risk. Which statement is correct?
• Emma earns €1,000 gross deposit interest in 2020 which is subject to DIRT at source. If Emma is a standard rate taxpayer in 2020, what additional income tax liability, if any, will she have on this interest?
• How do currency fluctuations impact international investing?
• Under the Consumer Protection Code, after providing a written investment recommendation to a vulnerable customer, the adviser should not arrange a financial product for at least how many working days?
• Which of the following is true about Irish REIT restrictions: At least 75% of its income derives from property rental and at least 75% of its assets relate to its property rental business.
• Mark has invested €50,000 in Savings Bonds. His investment is guaranteed to increase in value at which minimum interval?
• A higher-rate taxpayer receives a dividend from an Irish REIT. Which taxes would be liable in respect of this dividend?
• A 'Reason Why Statement' issued to a customer was deemed to be in breach of the Consumer Protection Code. This was because it was:
• Value at Risk (VaR) is best described as:
• Define convexity and its role in bond pricing.
• What is the role of liquidity in investment selection?
• Under MiFID regulations, before executing a CFDs order, what must a firm first do?
• Under Corporation Tax rules, what rates apply to trading profits and investment income?
• Which statement best describes the difference between active and passive investment management?
• What best defines the expense ratio for an investment fund?
• The Deposit Guarantee Scheme, administered by the Central Bank, covers which of the following depositors?
• How is after-tax cash flow from investments calculated?
• The dividend discount model (DDM) is appropriate for which type of firm?
• Which statement describes UCITS funds' investment policy?
• Which statement about inflation and real returns is true?
• If a deposit offers a nominal interest rate of 0.50% per annum, which frequency of crediting interest to that account will give the HIGHEST return to the depositor?
• What is duration and why is it important?
• If a bond issued by a company ranks ahead of another bond for repayment in a winding up, this is described as
• Which investment restrictions apply to an Irish REIT?
• In the Gordon Growth Model, D1 is the next period dividend. Which option correctly identifies D1's role?
• A life company tracker bond where the life company itself is providing the guarantee: which statement is correct?
• For a deposit account, which statement about AER and CAR in relation to DIRT is true?
• Returns from Savings Bonds are exempt from:
• If the 4.4% Treasury Bond 2024 is quoted at €114.00 on the Irish Stock Exchange, the flat yield is:
• What is the primary purpose of duration matching in fixed income immunization?
• Under the Consumer Protection Code, the advertisements can show simulated performance that is relevant to the performance of the bond. Which of the following is true?
• Another term used to describe investment risk is:
• Which statement best describes the difference between stocks and bonds in terms of cash flows and risk?
• On 18 October 2017, a 5% Treasury Bond maturing 18 October 2020 with €200 nominal was purchased at €206.50. Assuming no sale before maturity, the total amount received by maturity including all coupons and principal will be
• If the risk-free rate is 2%, the expected market return is 8%, and a stock has a beta of 1.5, what is the CAPM expected return?
• What is a call option and what is its payoff?
• What is the intrinsic value of an option?
• Modified duration provides the exact percentage price change for any yield change.
• In the 2020 capital gains example for Margaret, which statement is true about the chargeable gain?
• Convexity improves price estimates for large yield changes.
• The Deposit Guarantee Scheme covers which of the following depositors?
• Companies pay Corporation Tax as follows. Which option is correct?
• A portfolio with a low tracking error relative to its benchmark typically indicates what?
• What is the turnover ratio, and why does it matter?
• If the mean annual return is 4% and the standard deviation is 8%, you would expect 1/3 of annual returns to fall outside a range of:
• What does the time value of money principle primarily about in investment evaluation?
• Overdrafts are charged interest:
• Which of the following Irish Stock Exchange markets is NOT a regulated market for MiFID purposes?
• Chargeable gains for Capital Gains Tax are the gains after deducting the annual exemption. If gains total €4,500 and the exemption is €1,270, what is the chargeable gain?
• Using the scenario in Question 1, if the chargeable gain is €3,230 and the tax rate is 33%, what is the tax liability?
• Which statement about DIRT exemption criteria is NOT correct?
• UCITS KIID shows which charges?
• First-time buyers who purchased their first home in December 2017 may claim DIRT deducted from deposit interest in a period ending on the date of purchase.
• When information about past performance is provided for an advertised product, which statements must be true?
• Which statement about delta is correct?
• Investors invest in equities at a time when the yield gap is negative because they expect:
• In an index where weights are determined by market capitalisation, the larger a company's market capitalisation, the greater its weight.
• If yield declines, the present value of a fixed-rate bond generally increases.
• Which metric measures how far a portfolio's returns diverge from its benchmark, on average?
• The price of a bond excluding accrued interest is called:
• In the context of vulnerability, what capacity stance should be taken given reasonable accommodation?
• Counterparty risk in relation to a life assurance Tracker Bond refers to which risk?
• Patricia has invested in a bond issued by a company that is not listed on a stock exchange. Which of the following risks apply?
• How do you price a plain vanilla fixed-rate bond given coupons, face value, and yield?
• The total expense ratio (TER) of a UCITS fund includes which of the following?
• Jim invested €10,000, including costs, in shares three years ago. If he sells the shares in July 2020 for €14,500, after disposal costs, what Capital Gains Tax liability will he have on this gain assuming he makes no other gains or losses in 2020?
• Conor earns income from Treasury Bond; the income will be liable to:
• Which statement correctly distinguishes variance and standard deviation in risk measurement?
• Which statement about tax-efficient investing is most accurate?
• The document which contains the rules for the holding of a Designated Activity Company's Annual General Meeting is set out in the company's
• The policy that uses interest rate adjustments to influence the economy is known as which type of economic policy?
• Which item would be classified as a fixed asset on a balance sheet?
• The term EBITDA refers to earnings before which of the following?
• Individuals with total income less than €13,000 in 2020
• What is the primary purpose of rebalancing after market moves?
• Which term describes a rise in prices that occurs after a period of deflation?
• A bank is advertising a deposit account offering an interest rate of 0.5%. Under the Consumer Protection Code the advertisement MUST include:
• What is the difference between yield and total return?
• Explain the role of correlation in portfolio risk. Which statement is correct?
• When an Irish ETF is sold at a gain, how is the gain taxed?
• A UCITS fund must invest primarily in:
• Salary and wages arising from an employment are assessed to income tax under Schedule:
• Which one of the following risks is Jackie, who saves monthly in a unit-linked savings plan, less exposed to than Mark, who is going to invest a lump sum in the same unit fund?
• An ordinary annuity pays equal payments at the end of each period.
• Stamp Duty on a London Stock Exchange share purchase of 1,000 shares at £1.75 per share is payable at what amount (assuming standard stamp duty rate applies)?
• Which of the following statements is NOT a factor listed as affecting the number of units allocated monthly in a unit-linked plan?
• What is tracking error?
• What is duration matching in immunization strategies?
• Which statement best defines the expense ratio?
• One of the main functions of the European Central Bank (ECB) is:
• If inflation runs at 3% per annum over the next six years, what will be the purchasing power of €1,000 in six years' time, in terms of today’s purchasing power, using the supplied factors?
• Bonds issued by a government are commonly referred to as which type of bond?
• Which statements about ETFs are true?
• An Irish ETF sale results in a gain. How is the gain taxed?
• Alternative Investment Funds (AIFs) are:
• A SAYE scheme must be approved by which authority?
• The control of interest rates is which type of economic policy?
• Frank can reclaim the DIRT deducted from his deposit interest if his gross investment returns are in excess of which proportion of his total gross income?
• In relation to its dealings with customers in the US, a business based in Ireland is directly subject to which form of investment risk?
• The PRSI on investment income for 2020 in the given scenario is:
• What is the future value of PV today after n periods at rate r?
• Which duration is measured in years?
• What does the efficient frontier represent in portfolio theory?
• Liquidity risk is defined as the risk that an investor may not be able to do what in a timely manner without incurring a price concession?
• Why should after-tax returns be considered when evaluating performance?
• DIRT is charged at source on deposit interest.
• What does downside capture measure?
• Joan works in the tourist sector of the economy. She is laid off each October until the following March. When Joan becomes unemployed in October, this is an example of which type of unemployment?
• What is the difference between strategic asset allocation and tactical asset allocation?
• The minimum age to potentially qualify for the income tax exemption limit is 65. Which option correctly places this as the first choice?
• Unit prices of a UCITS fund must be valued on which basis?
• Peter and Aoife invested in a joint life unit-linked bond. The bond will normally pay out a death benefit
• Which type best describes a life assurance company that is a private company?
• Which statement best describes asset location's role in tax-aware investing?
• Jack and Cynthia own a joint life unit-linked investment bond. If Jack dies, what happens to ownership of the bond?
• USC exemption threshold for total income in 2020 for individuals earning below €13,000 is given as which of the following?
• In relation to Annual Equivalent Rate (AER) and Compound Annual Return (CAR) for deposit accounts, which statement is true?
• A callable bond is a bond that gives the issuer the option to redeem before maturity.
• What is the fourth step in the financial planning advisory process?
• How does tax-efficient investing affect portfolio construction?
• The projected breakeven point in a unit-linked savings plan is the
• What is the present value formula for an ordinary annuity paying PMT at the end of each period?
• Differentiate between Macaulay duration and modified duration.
• Interest payable on the State Savings Deposit Account is:
• What is the MINIMUM age at which an individual can potentially qualify for the exemption limit for income tax purposes?
• The UCITS Key Investor Information Document (KIID) provides information on which of the following?
• What does beta measure in the context of the CAPM framework?
• Paul is single. He can be exempted from DIRT in 2020 when the following apply: (i) he is over age 65 (ii) his total income including deposit interest for 2020 is less than €18,000. (iii) his total deposits with all deposit takers does not exceed €100,000.
• Which is a main function of the European Central Bank?
• Passively Managed Funds: which statement best describes them?
• Pauline is contributing €200 per month to a unit-linked savings plan investing in a Managed Fund. The number of units allocated to the plan each month is different. This is because
• Allocating units John has a life assurance savings plan with a sum assured of €10,000 and a current encashment value of €8,560. The charge for life cover this month on John's plan will be based on WHICH amount?
• In an execution-only Tracker Bond arrangement, what warning must Peter give in writing?
• With SAYE, if an option is exercised and the gain is realized, what tax applies after the annual exemption?
• If inflation is 3% per year for six years, which value correctly reflects the purchasing power of €1,000 today?
• Dividends received by John in 2020 from his normal credit union share account are:
• Under the Consumer Protection Code, when advertising a deposit account, which items must be included?
• What exit tax rate applies to gains realised by a company investment in an Irish collective investment fund?
• Which statement correctly describes the intrinsic value of a put option?
• What is the basic idea of the efficient market hypothesis (EMH)?
• Which statement best describes diversification across asset classes?
• Olive placed an order with her stockbroker to sell 1,000 shares 'at best'. The last transaction on the shares at the time Olive placed her order was completed at €12.30 per share. The stockbroker is required to sell the shares at
• Which measure focuses on downside performance relative to a threshold, ignoring upside?
• What is the present value formula for a single future cash flow?
• Which investment would have the lowest liquidity?
• If an Irish unit-linked investment of €100,000 made in 2014 is encashed fully in 2020 and is currently worth €150,000, what amount would be received into the investor's hands?
• What is the annual exemption limit for Capital Gains Tax for individuals?
• Under EMH, what is the likely outcome of active management after costs?
• Amy is an employee paying PRSI Class A. If she receives total investment income in a year of €2,000 gross, this income will be subject to which taxes?
• The company issues one new free share for every five shares already held by a shareholder. This is called
• What is the purpose of scenario analysis in investment planning?
• Harry works in a bank. He has taxable investment income totalling €3,000 in 2020. What amount of PRSI, if any, must Harry pay on this investment income for 2020?
• All of the following statements apply to a higher-rate taxpayer receiving an Irish REIT dividend except which?
• If a company has 2,000,000 ordinary shares and the current price is €2.50, what is the market capitalisation?
• Diversification primarily helps mitigate which type of risk?
• Which of the following best defines a rights issue?
• Why is assessing risk tolerance before investing important?
• For the ISEQ Overall Index, the weight of each quoted stock is related to its
• The activities of the Central Bank of Ireland are managed and controlled by the:
• What does the term par value (nominal value) refer to in share capital?
• Define 'suitability' in financial advice.
• A high P/E ratio can reflect which of the following?
• What is yield to maturity on a bond?
• What is the CAPM formula for expected return?
• Savings Bonds guarantee increase in value at which minimum interval?
• Passively Managed Funds: which statement is correct?
• A continuing increase in the price of goods and services is called:
• Patrick invested €50,000 in a life assurance tracker bond in 2014 and it matured in February 2020 at €55,000, before tax. What amount did he receive from the life company?
• An enterprise reported earnings before tax of €6 million and tax of €1 million, with 1,500,000 issued ordinary shares. What is its earnings per share for the year?
• Which statement best describes dollar-cost averaging and its potential benefit?
• What is the present value formula for a perpetuity paying PMT indefinitely?
• Which of the following is NOT automatically entitled to invest in a Qualifying Investor AIF?
• A MiFID firm has received an instruction from a retired client to buy a number of CFDs related to shares in a company listed on the Stock Exchange. Under MiFID regulations, the firm is required to:
• If the current share price falls while the annual gross dividend remains unchanged, what happens to the gross dividend yield?
• Default risk is mainly applicable to which type of security?
• In the Gordon Growth Model, the price today is D1/(r − g). What does D1 represent?
• A life assurance tracker bond may be unsuitable for Paul and Angie, a couple in their late 60s, because which statement is true?
• In a scenario where the yield gap is negative, investors typically expect which of the following?
• What is the difference between macro risk and micro risk?
• Rose has impaired hearing and Nora has impaired vision. When considering their status as vulnerable consumers, their investment adviser MUST:
• Which statement about CAPM is true?
• The price-to-earnings (P/E) ratio is used to gauge valuations relative to earnings by comparing which of the following?
• A company issued to shareholders 1,000,000 shares with a nominal value of €1 each at a price of €1.50 each. How is the €1,500,000 capital raised shown in the company's balance sheet?
• What is a put option and what is its payoff?
• What is time value in options pricing?
• What is rebalancing in a portfolio and why is it performed?
• In calculating earnings per share, which figure is used as the numerator?
• What is the role of a financial adviser in investment planning?
• An office building that a company owns and uses in the course of its business would be shown in the company's accounts as which type of asset?