CISI Investment Risk and Tax Planning -
Chapter 1 Exam Questions with Correct
Answers Graded Perfect Score A+
Download!!!
Difference between Gross and Net Interest - Answer -Gross is interest that is paid before the
deduction of income tax or other charges are deducted. Net interest rate is effective interest rate after
tax is deducted from the gross rate.
Explain Corporate Action 1 - Capitalisation Issue ? - Answer -
Features of National Savings and Investment Products - Answer -- Only risk free deposits since it's
government backed
- It's an agency of the chancellor, accountable to the Treasury.
How are bond indices classified? - Answer -- By bond type: Government bonds, corporate bonds,
high yield bonds, asset backed securities (ABS).
- By Credit Rating
- By Maturity Date
How are fixed income securities traded and settled in the primary market? - Answer -- These are
traded and settled direct with the DMO to buy gilts at auction.
Investors can make various bids at auction. These include:
- Competitive Bids:
> These are priced bids for at least £1,000,000.
> Those who bid the highest prices will get as much as they have subscribed for.
- Non- Competitive Bids:
, > These are non-priced bids between £1000 - £500,000 nominal value.
> In a non-competitive bids, the investor gets as much stock as they requested, at the average accepted
bid price for that particular auction( ie. the weighted average paid by successful competitive bidders)
How are fixed income securities traded and settled in the secondary market? - Answer -- In the
secondary market, debt securities (bonds) can be bought and sold through a stockbroker.
- In the secondary market, private investors are able to deal in gilts which are already in issue, directly
with the DMO, on a execution only basis ( no advice given, the investor must make the decisions). The
service is called the retail gilt purchase and sale service and it's operated by a firm called Computershare.
- Another way we are able to deal with deal securities is through the retail bond market. Retail bonds are
generally offered by intermediaries (ie. wealth managers) to their retail clients. Bonds are traded in units
less than £50,000 nominal value, and have maturities between five and 10 years.
The LSE launched the Order Book for Retail Bonds( ORB) platform as an order - driven trading service
providing access to a range of gilts (settlement time T+1) and UK corporate bonds (settlement time T+2),
in response to demand from retail investors in fixed interest securities.
- The clean price is the price of a coupon bond not including accrued interest payments.
Dirty price is the price of a bond that includes accrued interest between coupon payments.
Accrued interest is the amount of loan interest that has already occurred, but has not yet been paid by
the borrower and not yet received by the lender.
Dirty price = Clean price + Accrued interest
How are foreign government bonds issued internationally? - Answer -- Central bank for the
countries US, Germany, France
- Ministry of finance for the countries Netherlands, Japan
- Government agency (DMO) for the countries UK, Ireland, Sweden, Portugal, New Zealand
How are gilts classified based on how long they have to run before they wiil be redeemed (ie. before the
gov repays back the capital? - Answer -- The Financial Times Method classifies gilts as
>Shorts - under 5 years to run to redemption
> Mediums - 8-15 years to redemption
Chapter 1 Exam Questions with Correct
Answers Graded Perfect Score A+
Download!!!
Difference between Gross and Net Interest - Answer -Gross is interest that is paid before the
deduction of income tax or other charges are deducted. Net interest rate is effective interest rate after
tax is deducted from the gross rate.
Explain Corporate Action 1 - Capitalisation Issue ? - Answer -
Features of National Savings and Investment Products - Answer -- Only risk free deposits since it's
government backed
- It's an agency of the chancellor, accountable to the Treasury.
How are bond indices classified? - Answer -- By bond type: Government bonds, corporate bonds,
high yield bonds, asset backed securities (ABS).
- By Credit Rating
- By Maturity Date
How are fixed income securities traded and settled in the primary market? - Answer -- These are
traded and settled direct with the DMO to buy gilts at auction.
Investors can make various bids at auction. These include:
- Competitive Bids:
> These are priced bids for at least £1,000,000.
> Those who bid the highest prices will get as much as they have subscribed for.
- Non- Competitive Bids:
, > These are non-priced bids between £1000 - £500,000 nominal value.
> In a non-competitive bids, the investor gets as much stock as they requested, at the average accepted
bid price for that particular auction( ie. the weighted average paid by successful competitive bidders)
How are fixed income securities traded and settled in the secondary market? - Answer -- In the
secondary market, debt securities (bonds) can be bought and sold through a stockbroker.
- In the secondary market, private investors are able to deal in gilts which are already in issue, directly
with the DMO, on a execution only basis ( no advice given, the investor must make the decisions). The
service is called the retail gilt purchase and sale service and it's operated by a firm called Computershare.
- Another way we are able to deal with deal securities is through the retail bond market. Retail bonds are
generally offered by intermediaries (ie. wealth managers) to their retail clients. Bonds are traded in units
less than £50,000 nominal value, and have maturities between five and 10 years.
The LSE launched the Order Book for Retail Bonds( ORB) platform as an order - driven trading service
providing access to a range of gilts (settlement time T+1) and UK corporate bonds (settlement time T+2),
in response to demand from retail investors in fixed interest securities.
- The clean price is the price of a coupon bond not including accrued interest payments.
Dirty price is the price of a bond that includes accrued interest between coupon payments.
Accrued interest is the amount of loan interest that has already occurred, but has not yet been paid by
the borrower and not yet received by the lender.
Dirty price = Clean price + Accrued interest
How are foreign government bonds issued internationally? - Answer -- Central bank for the
countries US, Germany, France
- Ministry of finance for the countries Netherlands, Japan
- Government agency (DMO) for the countries UK, Ireland, Sweden, Portugal, New Zealand
How are gilts classified based on how long they have to run before they wiil be redeemed (ie. before the
gov repays back the capital? - Answer -- The Financial Times Method classifies gilts as
>Shorts - under 5 years to run to redemption
> Mediums - 8-15 years to redemption
