R02 - CII Exam Questions & answers
graded A+ 2025 updated
The price of conventional gilts have recently fallen. What is the most likely reason
for this? - correct answer ✔✔Inflation expectations have increased
In a period when interest rates have fallen substantially, the nominal value of a
conventional fixed-interest security at maturity will - correct answer ✔✔remain
constant
Portfolio X consists of blue chip shares and Portfolio Y consists of unlisted shares.
What type of risk is likely to be significantly higher for Portfolio Y when compared
to Portfolio X? - correct answer ✔✔Liquidity risk
An investor is looking to purchase international equities via an open-ended
investment company. In respect of currency risk, he should be aware that - correct
answer ✔✔a hedged share class will reduce the currency risk
An equities-based collective fund manager is reviewing his current portfolio and
wishes to limit downside risk. He would normally be expected to address this by -
correct answer ✔✔buying put options
An investment trust returns 6% over a given period, compared to the benchmark
index which returns 8%. If the investment trust has a beta of 1, this difference can
be explained by the - - correct answer ✔✔fund having a negative alpha
,What investments hold a significant discount to net asset value? - correct answer
✔✔Investment trusts
Neil has agreed to use a passive management style for his equities-based UK
portfolio. This means that he - correct answer ✔✔believes active fund managers
will consistently underperform the benchmark index
Researching ethical funds for a client who has expressed a desire to avoid
companies that manufacture armaments. As part of the fund selection criteria, in
order to meet the client requirements, the adviser will consider funds that
operate a - correct answer ✔✔dark green screening process
An inverse yield curve indicates - correct answer ✔✔1. lower yields for longer-
dated bonds compared to short-dated bonds
2. Increase in demand for longer-dated bonds
When comparing the characteristics of a building society deposit account and
National Savings and Investments direct savers account.. - correct answer ✔✔-
The National Savings and Investments is fully protected in the event of default
- Both will pay interest on a gross basis
- National Savings and Investments will not have voting rights
What are the main differences better a short-term money market fund and a a
standard money market fund? - correct answer ✔✔1. only the short-term fund
has a weighted average maturity of no more than 60 days
2. both funds hold commercial bills
3. both funds could hold certificates of deposit maturing in one month
, Abel holds preference shares
Handan holds ordinary shares in the same listed company
Consequently.. - correct answer ✔✔1. both of them rank behind the company's
bonds in the event of liquidation
2. Abel is more likely to receive a higher income stream than Handan
When comparing a number of gilts and corporate bonds, what is the difference? -
correct answer ✔✔1. investors requiring ultra-long duration would favour gilts
rather than corporate bonds
2. a requirement for higher yield would favour corporate bonds over gilts
What are the usual characteristics of a company traded on AIM compared to the
FTSE 100 index? - correct answer ✔✔a) has a wider share price spread
b) smaller market capitalisations
When considering the pricing characteristic of a conventional gilt.. - correct
answer ✔✔1. the amount paid for the stock at the redemption value will always
be £100
2. a purchaser of a gilt will usually be pay a higher price than the seller will receive
When explaining to a new retail client the impact of correlation on the asset
classes of the client's investment portfolio, the adviser would explain that - -
correct answer ✔✔1. increasing the level of positive correlation automatically
increases the portfolio's equity market risk
graded A+ 2025 updated
The price of conventional gilts have recently fallen. What is the most likely reason
for this? - correct answer ✔✔Inflation expectations have increased
In a period when interest rates have fallen substantially, the nominal value of a
conventional fixed-interest security at maturity will - correct answer ✔✔remain
constant
Portfolio X consists of blue chip shares and Portfolio Y consists of unlisted shares.
What type of risk is likely to be significantly higher for Portfolio Y when compared
to Portfolio X? - correct answer ✔✔Liquidity risk
An investor is looking to purchase international equities via an open-ended
investment company. In respect of currency risk, he should be aware that - correct
answer ✔✔a hedged share class will reduce the currency risk
An equities-based collective fund manager is reviewing his current portfolio and
wishes to limit downside risk. He would normally be expected to address this by -
correct answer ✔✔buying put options
An investment trust returns 6% over a given period, compared to the benchmark
index which returns 8%. If the investment trust has a beta of 1, this difference can
be explained by the - - correct answer ✔✔fund having a negative alpha
,What investments hold a significant discount to net asset value? - correct answer
✔✔Investment trusts
Neil has agreed to use a passive management style for his equities-based UK
portfolio. This means that he - correct answer ✔✔believes active fund managers
will consistently underperform the benchmark index
Researching ethical funds for a client who has expressed a desire to avoid
companies that manufacture armaments. As part of the fund selection criteria, in
order to meet the client requirements, the adviser will consider funds that
operate a - correct answer ✔✔dark green screening process
An inverse yield curve indicates - correct answer ✔✔1. lower yields for longer-
dated bonds compared to short-dated bonds
2. Increase in demand for longer-dated bonds
When comparing the characteristics of a building society deposit account and
National Savings and Investments direct savers account.. - correct answer ✔✔-
The National Savings and Investments is fully protected in the event of default
- Both will pay interest on a gross basis
- National Savings and Investments will not have voting rights
What are the main differences better a short-term money market fund and a a
standard money market fund? - correct answer ✔✔1. only the short-term fund
has a weighted average maturity of no more than 60 days
2. both funds hold commercial bills
3. both funds could hold certificates of deposit maturing in one month
, Abel holds preference shares
Handan holds ordinary shares in the same listed company
Consequently.. - correct answer ✔✔1. both of them rank behind the company's
bonds in the event of liquidation
2. Abel is more likely to receive a higher income stream than Handan
When comparing a number of gilts and corporate bonds, what is the difference? -
correct answer ✔✔1. investors requiring ultra-long duration would favour gilts
rather than corporate bonds
2. a requirement for higher yield would favour corporate bonds over gilts
What are the usual characteristics of a company traded on AIM compared to the
FTSE 100 index? - correct answer ✔✔a) has a wider share price spread
b) smaller market capitalisations
When considering the pricing characteristic of a conventional gilt.. - correct
answer ✔✔1. the amount paid for the stock at the redemption value will always
be £100
2. a purchaser of a gilt will usually be pay a higher price than the seller will receive
When explaining to a new retail client the impact of correlation on the asset
classes of the client's investment portfolio, the adviser would explain that - -
correct answer ✔✔1. increasing the level of positive correlation automatically
increases the portfolio's equity market risk
