American Bankers Association American Bankers Association Certifications CTFA Questions & Answers

• Question 31:

  Frank, age 55, is considering adopting a lifestyle investment technique as he aims to build up his personal pension prior to retirement. He should be aware that:

  A. The asset mix of the fund will be adjusted automatically on pre-determined dates

  B. His ongoing exposure to equities will reduce with lifestyling

  C. After 10 years, a maximum of 25% of the investments will be in bonds

  D. Lifestyling is likely to be appropriate if he intends to purchase a conventional annuity with his entire fund.

  Correct Answer: ABD

• Question 32:

  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?

  A. £22,750

  B. £26,000

  C. £29,750

  D. £34,000

  Correct Answer: B

• Question 33:

  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?

  A. He is a member of an Employer Financed Retirement Benefit Scheme (EFRBS)

  B. He is aged 61

  C. His total annual earnings have never exceeded £110,000

  D. His benefits include the maximum level of death benefit

  Correct Answer: C

• Question 34:

  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:

  A. At maturity

  B. If he makes a partial surrender

  C. If he assigns the policy to his wife

  D. On settlement of a critical illness claim

  Correct Answer: AB

• Question 35:

  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:

  A. £30,000

  B. £46,000

  C. £94,000

  D. £110,000

  Correct Answer: D

• Question 36:

  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:

  A. Any losses from this portfolio are allowable for Capital Gains Tax calculations

  B. Her entire portfolio will be subject to a 10% tax credit

  C. Only the proceeds of sale from the OEICs could be subject to Capital Gains Tax

  D. The taxation of dividends on the OEICs held will be treated the same way as the unit trusts

  E. She can never reclaim any tax deducted at source

  Correct Answer: AD

• Question 37:

  The principal reasons for using the Sharpe ratio when calculating a portfolio's performance are:

  A. It indicates the percentage return above/below the risk-free rate for each unit of risk taken

  B. It will always be quoted on a rolling quarterly basis

  C. A positive Sharpe ratio will always guarantee positive returns

  D. The higher the number, the more a portfolio manager can be said to have added value

  Correct Answer: AD

• Question 38:

  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?

  A. Arbitrage

  B. Gearing

  C. Hedging

  D. Pound cost averaging

  Correct Answer: C

• Question 39:

  When constructing a portfolio for a UK resident basic-rate taxpayer who requires an income, the most tax efficient solution would be achieved by:

  A. Only investing in offshore products

  B. Holding fixed-interest funds within a stocks and shares ISA

  C. Purchasing National Savings and Investments (NSandI) Fixed-Interest Savings Certificates

  D. Holding high-yielding equities within a stocks and shares ISA

  Correct Answer: B

• Question 40:

  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?

  A. He must have at least 3 years experience as an adviser before his training can commence

  B. His firm is allowed to impose a time limit on completion of the qualification

  C. His supervisor must also be suitably qualified

  D. Once qualified, CPD requirements are waived for 12 months

  E. Once qualified, records of his training must be maintained for at least 5 years

  Correct Answer: BC