International Certificate in Wealth & Investment Management

Question 1

Once a company reaches the point known as the minimum efficient scale, the theory of the firm suggests that the company should:

A. Increase its unit price

B. Accelerate its output expansion

C. Halt its output expansion

D. Decrease its unit price

Correct Answer: C

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Question 2

A business may need key person protection because:

A. Its profits are very seasonal

B. The business relies on the input of an individual

C. It is to cover a very significant customer

D. It is a very small business

Correct Answer: B

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Question 3

Your client estimates that they will require £50,000 of income annually to live off when they retire. Personal plus state pension will provide £40,000. They wish to retire in 25 years' time. It is estimated that they can earn 5% per annum, and inflation has been forecast at 2%. Interest rates are currently 1.5%. Allowing for inflation, what lump sum would they need to accrue to supplement their pension?

A. £546,869

B. £468,745

C. £252,401

D. £328,120

Correct Answer: D

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Question 4

Under an accumulation and maintenance trust, when does the trustees' discretion over payments normally cease (if at all)?

A. On the death of the settlor

B. On the death of the life tenant

C. At the end of a prescribed period

D. It continues indefinitely

Correct Answer: C

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Question 5

Shareholder value models seek to establish whether a company has the ability to add value for its ordinary shareholders. They do this by:

A. Comparing current dividends to expected future dividends

B. Measuring the change in net asset value NAV

C. Comparing returns on assets to the cost of asset financing

D. Assuming dividends will grow at a constant rate

Correct Answer: C

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Question 6

The Return on Capital Employed (ROCE) ratio can be used to:

A. Determine the need for capital

B. Establish trends between accounting periods

C. Assist in revaluing fixed assets

D. Calculate the return on ordinary shareholders' equity

Correct Answer: B

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Question 7

A bullet bond portfolio can have an advantage over a barbell bond portfolio because:

A. A bullet portfolio does not require regular rebalancing

B. It is always riding the yield curve

C. It only invests in short-dated bonds

D. The gross redemption yield is always higher

Correct Answer: A

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Question 8

An adviser, whilst acting for a client, has identified a conflict of interest which they cannot avoid. In this situation the adviser should:

A. Continue to act for the client without charge

B. Register the conflict with the Financial Conduct Authority FCA

C. Withdraw from the transaction

D. Close the client's account

Correct Answer: C

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Question 9

If a company's Economic Value Added (EVA) is negative, this means that:

A. The company's value is being destroyed

B. The company's value is nil

C. The rate of growth in the company's value is below that of the sector average

D. The rate of growth in the company's value is slowing down

Correct Answer: A

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Question 10

What is the purpose of measuring a company's dividend yield?

A. It provides an indication of future dividend growth for a successful company

B. It provides an indication of the expected return on a share and then can then be compared to other shares

C. It is useful for investors not wanting to exceed the annual dividend tax allowance

D. It provides a clear indication of how much profit is being used by the company for expansion and growth

Correct Answer: B

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Question 11

A firm decides that it would be inappropriate to make derivative recommendations to a particular client. It is likely that the client has been categorised as:

A. A retail client

B. A professional

C. An eligible counterparty

D. A private investor

Correct Answer: A

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Question 12

An advisor is reviewing a client's portfolio which has a time horizon of 15 years and is made up primarily of bonds and cash but with some exposure to equities and other higher-risk investments. It is reasonable to believe that the client's risk appetite is:

A. Low-Mid Risk

B. Mid-High Risk

C. Low Risk

D. Mid Risk

Correct Answer: A

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Question 13

Capital gains tax CGT is charged:

A. On the transfer of assets upon death

B. At a reduced rate for pensions

C. On any asset at the time of its disposal

D. On gains arising from the sale of an asset

Correct Answer: D

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Question 14

A rise in living standards will tend to:

A. Create an increased demand for commodities

B. Have no effect on commodities

C. Increase government participation in the commodities markets

D. Reduce the demand for commodities

Correct Answer: A

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Question 15

The Efficient Market Hypothesis (EMH) states that it is impossible to beat the market because:

A. Not all participants can interpret information correctly

B. Investors do not always invest in a rational fashion

C. All relevant information is in the price

D. Fund managers already perform at optimum levels

Correct Answer: C

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CISI International Certificate in Wealth & Investment Management - ICWIM Exam Practice Test

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