CII R02 Exam Questions with Verified Correct
Answers
clean price
ignores the value of accrued interest
dirty price
total amount paid by a purchaser, which is the clean price plus or minus any interest
adjustment
cum dividend
the purchaser will receive the full 6 months interest, even though the bond was owned by
them for less than the entire period.
the buyer has to compensate the seller the for interest to which they were entitled but has not
received
nominal value
aka par value
quoted at a price for £100
ex dividend
if a bond is purchased after the seven days before the interest payment date (as these
payments are made to the registered holder) the full 6months interest will be paid to the
seller.
anyone buying after it goes ex dividend is deprived of the interest and the price is adjusted to
reflect this.
interest yield (running, flat or income yield)
,coupon or nominal yield divided by clean price, x 100
e.g. investor pays £126.85 (clean price) for £100 nominal value with a coupon of 8%
so 8 ÷ 126.85, x 100 = 6.31%
redemption yield
interest yield + or - GAIN (OR LOSS) TO MATURITY + NUMBER OF YEARS TO
MATURITY divided by CLEAN PRICE, x 100
Bond Markets
arranging and selling of original issues of bonds takes place in the primary market, and
trading afterwards takes place in the secondary market.
Primary Market
Governments are the largest issuers in the bond market. In the UK new gilts being issued are
managed by the HM Treasury's DMO.
DMO
Debt Management Office - manages the issue of Treasury Bills in the UK to manage the
Government's daily cash flow needs
Cash investments are riskless - true or false
False - Purchasing power of the cash (its 'real' value) can decline over the period of
investment due to inflation and there's also the default risk that the funds deposited are not
returned
interest yield (aka current, falt or running yield)
, Coupon / clean price x 100
gross redemption yield (taking into account the total return from the investment)
Interest yield plus or minus the gain or loss to maturity divided by the number of years to
maturity divided by the clean price multiplied by 100.
best measure of a bond's performance?
Redemption yield as it reflects the returns from both the interest and final redemption
payments
What is the usual bid offer spread on an OEIC?
Nil
List 3 characteristics of a structured product
1. Guarantee of capital or income or both
2. Minimum/maximum returns are pre-specified
3. Fixed-term investments
What are the two main considerations when investing in residential property?
1. Any taxable gain will be subject to a CGT loading of 8%
2. He will be exposed to a significant liquidity risk
What is the main condition to be a qualifying company for the EIS?
It cannot have arrangements to become listed when issuing shares
What 3 things are required to calculate the information ratio?
Benchmark return, tracking error, portfolio return.
The EPS of a company (2)
Answers
clean price
ignores the value of accrued interest
dirty price
total amount paid by a purchaser, which is the clean price plus or minus any interest
adjustment
cum dividend
the purchaser will receive the full 6 months interest, even though the bond was owned by
them for less than the entire period.
the buyer has to compensate the seller the for interest to which they were entitled but has not
received
nominal value
aka par value
quoted at a price for £100
ex dividend
if a bond is purchased after the seven days before the interest payment date (as these
payments are made to the registered holder) the full 6months interest will be paid to the
seller.
anyone buying after it goes ex dividend is deprived of the interest and the price is adjusted to
reflect this.
interest yield (running, flat or income yield)
,coupon or nominal yield divided by clean price, x 100
e.g. investor pays £126.85 (clean price) for £100 nominal value with a coupon of 8%
so 8 ÷ 126.85, x 100 = 6.31%
redemption yield
interest yield + or - GAIN (OR LOSS) TO MATURITY + NUMBER OF YEARS TO
MATURITY divided by CLEAN PRICE, x 100
Bond Markets
arranging and selling of original issues of bonds takes place in the primary market, and
trading afterwards takes place in the secondary market.
Primary Market
Governments are the largest issuers in the bond market. In the UK new gilts being issued are
managed by the HM Treasury's DMO.
DMO
Debt Management Office - manages the issue of Treasury Bills in the UK to manage the
Government's daily cash flow needs
Cash investments are riskless - true or false
False - Purchasing power of the cash (its 'real' value) can decline over the period of
investment due to inflation and there's also the default risk that the funds deposited are not
returned
interest yield (aka current, falt or running yield)
, Coupon / clean price x 100
gross redemption yield (taking into account the total return from the investment)
Interest yield plus or minus the gain or loss to maturity divided by the number of years to
maturity divided by the clean price multiplied by 100.
best measure of a bond's performance?
Redemption yield as it reflects the returns from both the interest and final redemption
payments
What is the usual bid offer spread on an OEIC?
Nil
List 3 characteristics of a structured product
1. Guarantee of capital or income or both
2. Minimum/maximum returns are pre-specified
3. Fixed-term investments
What are the two main considerations when investing in residential property?
1. Any taxable gain will be subject to a CGT loading of 8%
2. He will be exposed to a significant liquidity risk
What is the main condition to be a qualifying company for the EIS?
It cannot have arrangements to become listed when issuing shares
What 3 things are required to calculate the information ratio?
Benchmark return, tracking error, portfolio return.
The EPS of a company (2)
