Qualified Financial Adviser (QFA) Investments Exam 1 Practice Test

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• What does downside capture measure?
• What is the difference between strategic asset allocation and tactical asset allocation?
• 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?
• Under the Consumer Protection Code, when advertising a deposit account, which items must be included?
• 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?
• What is a put option and what is its payoff?
• Which statement best describes the difference between stocks and bonds in terms of cash flows and risk?
• 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
• What is time value in options pricing?
• The Deposit Guarantee Scheme, administered by the Central Bank, covers which of the following depositors?
• If the 4.4% Treasury Bond 2024 is quoted at €114.00 on the Irish Stock Exchange, the flat yield is:
• In calculating earnings per share, which figure is used as the numerator?
• A higher-rate taxpayer receives a dividend from an Irish REIT. Which taxes would be liable in respect of this dividend?
• Which of the following is NOT automatically entitled to invest in a Qualifying Investor AIF?
• 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?
• 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?
• 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?
• The projected breakeven point in a unit-linked savings plan is the
• The company issues one new free share for every five shares already held by a shareholder. This is called
• 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 is the intrinsic value of an option?
• Which statement best describes the difference between active and passive investment management?
• What is the role of a financial adviser in investment planning?
• If a bond issued by a company ranks ahead of another bond for repayment in a winding up, this is described as
• A UCITS fund must invest primarily in:
• What is duration and why is it important?
• Which statement best describes asset location's role in tax-aware investing?
• Which measure focuses on downside performance relative to a threshold, ignoring upside?
• The activities of the Central Bank of Ireland are managed and controlled by which body?
• Which item would be classified as a fixed asset on a balance sheet?
• Which statement correctly distinguishes variance and standard deviation in risk measurement?
• A life company tracker bond where the life company itself is providing the guarantee: which statement is correct?
• Dividends from credit union share accounts are treated for DIRT as if they were deposit interest.
• The UCITS Key Investor Information Document (KIID) provides information on which of the following?
• 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?
• Under the Consumer Protection Code, which statement must ABC state in an advertisement for a Tracker Bond maturing in seven years?
• Why should after-tax returns be considered when evaluating performance?
• Which duration is measured in years?
• Diversification primarily helps mitigate which type of risk?
• If yield declines, the present value of a fixed-rate bond generally increases.
• The control of interest rates is which type of economic policy?
• In relation to its dealings with customers in the US, a business based in Ireland is directly subject to which form of investment risk?
• Overdrafts are charged interest:
• Maturity transformation in relation to financial services is:
• Default risk is mainly applicable to which type of security?
• Differentiate between systematic and unsystematic risk. Which statement is correct?
• Which term describes a rise in prices that occurs after a period of deflation?
• 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?
• Which type best describes a life assurance company that is a private company?
• What does the time value of money principle primarily about in investment evaluation?
• Which of the following combinations correctly identifies the Irish Stock Exchange markets that are NOT MiFID-regulated?
• Mark has invested €50,000 in Savings Bonds. His investment is guaranteed to increase in value at which minimum interval?
• A high P/E ratio can reflect which of the following?
• Savings Bonds guarantee increase in value at which minimum interval?
• What is the difference between yield and total return?
• 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?
• 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?
• The price of a bond excluding accrued interest is called:
• What is the turnover ratio, and why does it matter?
• Dividends received by John in 2020 from his normal credit union share account are:
• Passively Managed Funds: which statement is correct?
• 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 asset location?
• 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?
• What is rebalancing in a portfolio and why is it performed?
• What is the CAPM formula for expected return?
• For a deposit account, which statement about AER and CAR in relation to DIRT is true?
• How is after-tax cash flow from investments calculated?
• 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
• What does beta measure in the context of the CAPM framework?
• What is the difference between macro risk and micro risk?
• What is the present value formula for a single future cash flow?
• When an Irish ETF is sold at a gain, how is the gain taxed?
• What is the basic idea of the efficient market hypothesis (EMH)?
• Which statement best describes diversification across asset classes?
• The total expense ratio (TER) of a UCITS fund includes which of the following?
• Under EMH, what is the likely outcome of active management after costs?
• What is the present value formula for an ordinary annuity paying PMT at the end of each period?
• A continuing increase in the price of goods and services is called:
• What exit tax rate applies to gains realised by a company investment in an Irish collective investment fund?
• What is the future value of PV today after n periods at rate r?
• Which statement about inflation and real returns is true?
• 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.
• Which investment restrictions apply to an Irish REIT?
• Which is a main function of the European Central Bank?
• A callable bond is a bond that gives the issuer the option to redeem before maturity.
• 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:
• Which metric measures how far a portfolio's returns diverge from its benchmark, on average?
• An Exchange-Traded Fund (ETF) is:
• Which would offer investors the highest level of protection against inflation over the longer term?
• What is the role of liquidity in investment selection?
• Define convexity and its role in bond pricing.
• In the Gordon Growth Model, the price today is D1/(r − g). What does D1 represent?
• If a fund aims to outperform a stock market index, which investment management style is it adopting?
• 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?
• Define 'suitability' in financial advice.
• The policy that uses interest rate adjustments to influence the economy is known as which type of economic policy?
• What is a mutual fund's turnover ratio and why does it matter?
• In the context of vulnerability, what capacity stance should be taken given reasonable accommodation?
• Salary and wages arising from employment are assessed to income tax under Schedule which option reflects the correct choice given in the material?
• What is the present value formula for a perpetuity paying PMT indefinitely?
• If inflation is 3% per year for six years, which value correctly reflects the purchasing power of €1,000 today?
• Under Corporation Tax rules, what rates apply to trading profits and investment income?
• Which of the following is typically a current liability on a balance sheet?
• An Irish ETF sale results in a gain. How is the gain taxed?
• Which statement about delta is correct?
• When information about past performance is provided for an advertised product, which statements must be true?
• Which statement describes UCITS funds' investment policy?
• Investors invest in equities at a time when the yield gap is negative because they expect:
• Explain the role of correlation in portfolio risk. Which statement is correct?
• 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?
• 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?
• Alternative Investment Funds (AIFs) are:
• Modified duration provides the exact percentage price change for any yield change.
• If the current share price falls while the annual gross dividend remains unchanged, what happens to the gross dividend yield?
• What does the term par value (nominal value) refer to in share capital?
• 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?
• 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?
• UCITS KIID shows which charges?
• What is the purpose of scenario analysis in investment planning?
• Jack and Cynthia own a joint life unit-linked investment bond. If Jack dies, what happens to ownership of the bond?
• What is a call option and what is its payoff?
• All of the following statements apply to a higher-rate taxpayer receiving an Irish REIT dividend except which?
• DIRT is charged at source on deposit interest.
• Which item would be classified as a current asset on a balance sheet?
• Returns from Savings Bonds are exempt from:
• If two assets are perfectly negatively correlated, the portfolio variance can be which of the following as you mix them in equal weights?
• A SAYE scheme must be approved by which authority?
• A deposit agent meets a customer for the first time. What is the FIRST document the deposit agent must give to the customer before providing any financial service for him or her?
• If a company has 2,000,000 ordinary shares and the current price is €2.50, what is the market capitalisation?
• 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?
• Using the scenario in Question 1, if the chargeable gain is €3,230 and the tax rate is 33%, what is the tax liability?
• One of the main functions of the European Central Bank (ECB) is:
• The activities of the Central Bank of Ireland are managed and controlled by the:
• Conor earns income from Treasury Bond; the income will be liable to:
• Which statement best describes dollar-cost averaging and its potential benefit?
• Companies pay Corporation Tax as follows. Which option is correct?
• Which of the following statements is NOT a factor listed as affecting the number of units allocated monthly in a unit-linked plan?
• In an execution-only Tracker Bond arrangement, what warning must Peter give in writing?
• What is the fourth step in the financial planning advisory process?
• Which of the following best defines a rights issue?
• Which investment would have the lowest liquidity?
• In an index where weights are determined by market capitalisation, the larger a company's market capitalisation, the greater its weight.
• When shares are issued at a premium above nominal value, the excess amount is recorded in which reserve?
• 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 term EBITDA refers to earnings before which of the following?
• How do inflation and real returns relate?
• 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?
• Individuals with total income less than €13,000 in 2020
• 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 about CAPM is true?
• In the 2020 capital gains example for Margaret, which statement is true about the chargeable gain?
• Counterparty risk in relation to a life assurance Tracker Bond refers to which risk?
• 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.
• 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?
• The dividend discount model (DDM) is appropriate for which type of firm?
• How do currency fluctuations impact international investing?
• What is the MINIMUM age at which an individual can potentially qualify for the exemption limit for income tax purposes?
• What is the annual exemption limit for Capital Gains Tax for individuals?
• Which of the following Irish Stock Exchange markets is NOT a regulated market for MiFID purposes?
• A life assurance tracker bond may be unsuitable for Paul and Angie, a couple in their late 60s, because which statement is true?
• Differentiate between Macaulay duration and modified duration.
• Passively Managed Funds: which statement best describes them?
• What is yield to maturity on a bond?
• What is the primary purpose of duration matching in fixed income immunization?
• Patricia has invested in a bond issued by a company that is not listed on a stock exchange. Which of the following risks apply?
• What is a benchmark and why is it used?
• Which investment type has shown the highest volatility of returns over the longer term?
• How does tax-efficient investing affect portfolio construction?
• 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:
• What is duration matching in immunization strategies?
• The price-to-earnings (P/E) ratio is used to gauge valuations relative to earnings by comparing which of the following?
• A tracker bond's maturity bonus may be subject to which tax?
• Alternative Investment Funds are:
• Which statements about ETFs are true?
• Which statement BEST describes the gross dividend yield of a company's share?
• The PRSI on investment income for 2020 in the given scenario is:
• 4.6.2 Exemption from DIRT: Which combination yields exemption from DIRT in 2020?
• Which statement about DIRT exemption criteria is NOT correct?
• In a scenario where the yield gap is negative, investors typically expect which of the following?
• USC exemption threshold for total income in 2020 for individuals earning below €13,000 is given as which of the following?
• Which authority approves SAYE schemes?
• What best defines the expense ratio for an investment fund?
• In relation to Annual Equivalent Rate (AER) and Compound Annual Return (CAR) for deposit accounts, which statement is true?
• Under MiFID regulations, before executing a CFDs order, what must a firm first do?
• 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?
• Which statement about tax-efficient investing is most accurate?
• An ordinary annuity pays equal payments at the end of each period.
• Why is diversification important for a portfolio?
• 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?
• A bank is advertising a deposit account offering an interest rate of 0.5%. Under the Consumer Protection Code the advertisement MUST include:
• The Deposit Guarantee Scheme covers which of the following depositors?
• The minimum age to potentially qualify for the income tax exemption limit is 65. Which option correctly places this as the first choice?
• For the ISEQ Overall Index, the weight of each quoted stock is related to its
• A 'Reason Why Statement' issued to a customer was deemed to be in breach of the Consumer Protection Code. This was because it was:
• Salary and wages arising from an employment are assessed to income tax under Schedule:
• How do you price a plain vanilla fixed-rate bond given coupons, face value, and yield?
• Bonds issued by a government are commonly referred to as which type of bond?
• What is the primary purpose of rebalancing after market moves?
• 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 statement best defines the expense ratio?
• Monetary policy in the EU countries who are members of the Eurozone is under the control of the:
• Value at Risk (VaR) is best described as:
• Which of the following funds provides diversification between the main asset classes?
• Rose has impaired hearing and Nora has impaired vision. When considering their status as vulnerable consumers, their investment adviser MUST:
• 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
• In the Gordon Growth Model, D1 is the next period dividend. Which option correctly identifies D1's role?
• Another term used to describe investment risk is:
• Peter and Aoife invested in a joint life unit-linked bond. The bond will normally pay out a death benefit
• Which statement regarding EMH and information-based trading is most accurate?
• 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?
• Interest payable on the State Savings Deposit Account is:
• Unit prices of a UCITS fund must be valued on which basis?
• 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?
• Which statement correctly describes the intrinsic value of a put option?
• 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.
• With SAYE, if an option is exercised and the gain is realized, what tax applies after the annual exemption?
• 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?
• Convexity improves price estimates for large yield changes.
• What is tracking error?
• What does the efficient frontier represent in portfolio theory?
• 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?
• Why is assessing risk tolerance before investing important?
• A portfolio with a low tracking error relative to its benchmark typically indicates what?