R02 exam: FREE practice questions

r02

R02 exam: FREE practice questions

Are you revising for the CII’s R02 exam? Know someone who is? Nothing better to do and want to test your R02 knowledge? Then read on…..!

We’ve put together 10 single-response multiple choice questions for you as a taster of what you can expect in the R02 exam. With this exam, your main challenge isn’t completing it in the time allowed (like R03). It’s more about understanding a very wide range of investments solutions – some of which, you probably won’t have come across before.

We’ve helped over 6,000 people prepare for the CII R0 exams over the past 12 months (1st July 2018 to the 1st July 2019). We don’t sell multiple choice questions but we are here to help as much as we can with your R02 exam.

What we do offer is unique R02 MP3 audio material. This provides around 4 hours of dedicated material that enables you to fit your study around your business and social life – not the other way around.  Click here for further details.

Now, onto the practice questions. These are based on the 2019/20 tax year. See how well you do on these R02 exam style questions. You’ll find the answers at the end.

Here goes……..

1. In a period when interest rates have fallen substantially, the nominal value of a conventional fixed interest security at maturity will:

A. increase significantly.

B. decrease significantly.

C. remain constant.

D. increase in line with inflation.

2. A government can use fiscal measures to address declining GDP by:

A. reducing the Bank of England’s target inflation rate.

B. increasing the rate of Value Added Tax.

C. reducing the level of gilt issues.

D. reducing the burden of Corporation Tax.

3. A financial adviser has recommended collective investments which are negatively correlated to each other. This will ensure that they:

A. are capable of generating income and growth.

B. have a degree of diversification.

C. have a combined beta of 0.

D. have an alpha with a negative value.

4. Portfolio X consists of blue chip ordinary 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?

A. Market risk.

B. Event risk.

C. Inflation risk.

D. Liquidity risk.

5. If a client has a collective investment where the share price is currently at a significant discount to the net asset value, what type of investment is it?

A. Investment trust.

B. OEIC.

C. Exchange Traded Fund.

D. Unit trust.

6. Alicia has fully surrendered an onshore single premium investment bond with a chargeable gain of £20,000 after 5 years. If she has no other savings income and her taxable income is £36,000, she should be aware that:

A. the full gain would be subject to 20% income tax.

B. the full gain would be subject to an additional 25% income tax.

C. she would have a personal savings allowance of £1,000.

D. she would have a personal savings allowance of £500.

7. A client who invests in a new issue of VCT shares would benefit from its tax treatment because:

A. the proceeds on death will be free of inheritance tax.

B. income tax relief is available at 30% up to a maximum of £200,000 per tax year.

C. shares must only be kept for three years to benefit from income tax relief.

D. an investor can potentially carry back income tax relief to the previous tax year.

8. Neil has agreed to have his portfolio managed on a passive basis. This means that he:

A. believes active fund managers will consistently outperform the benchmark index.

B. believes active fund managers will consistently underperform the benchmark index.

C. has increased his risk profile.

D. has reduced his risk profile.

9. What is the running yield on a corporate bond that has a clean price of £114, a par value of £100 and pays 5.2% income?

A. 4.56%.

B. 5.2%.

C. 7.85%.

D. 8.6%.

10. When agreeing the benchmark for an investment portfolio with a client, what is it always important to do?

A. Select the lowest risk benchmark from the available choices.

B. Use one constructed using Modern Portfolio Theory.

C. Use one that matches the mix of assets in the portfolio.

D. Select a benchmark that is positively correlated with the portfolio’s underlying assets.

R02 Resources

Here are some other tips and information you might find useful:

CII R02 exam: the 5 myths. Click here

How to pass R02. Click here

Answers: 1: C; 2: D; 3: B; 4: D; 5: A; 6: D; 7: B; 8: B; 9: A; 10: C.

Remember, good preparation is the key. Hope that you found this useful. Until the next time

The Diploma Doctor

wwwr0exams