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r02

R02 exam: FREE practice questions

Are you revising for the CII’s R02 exam? Know someone who is? 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. 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 2023/24 tax year. See how well you do on these R02 exam style questions. You’ll find the answers at the end.

Here goes……..

10 R02 questions

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. increasing the level of gilt issues.

D. reducing Corporation Tax rates.

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

A. are capable of generating both 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 income after reliefs and allowances 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

Ian Patterson

Author of the current CF8, J07, and AF6 CII study texts and ex-examiner

CII R06 exam

How to pass R02

The CII’s exam, R02  Investment Principles, is one of the CII harder exams. It has a pass rate of 68%. And do you know what, it will probably feel tough.

The CII R02 exam has 100 questions, and you have 2 hours to complete the exam. 28 questions are the harder multiple-response style questions that require more than one answer.

10 tips on how to pass R02 first time

  1. Put in the hard yards. The CII recommend 60 hours of study and most people will, unfortunately, need this and perhaps more. Why? Because R02 covers a very wide range of investments – including direct investments into shares and gilts. These are likely to be unfamiliar territory for most people.
  2. Work smarter, not harder. It’s not just about how much study you do, but it’s also about the quality of your study. Most people learn best by ‘doing stuff’, rather than just reading (which is passive). For example, use highlighter pens, write summary notes and use the CII online Knowledge Checker practice questions. You might also use our audio material so that you can learn on the go. Click here for details.
  3. Look at the R02 syllabus. You might think that this is a cure for insomnia but really, I’m serious. The CII R02 study text follows the sequence of the syllabus. The key point is that some chapters will have more questions in the exam than some others. Chapters 1, 7, 8, section L of chapter 10 and chapter 11 account for all of the multiple response questions and 46% of the remaining marks. If time is short, why wouldn’t you focus on these chapters? Click here to see the CII R02 syllabus.
  4. Focus on the content you don’t know. Most people will be familiar with some elements of the content. As few people will read the study text from cover to cover, focus your reading on the bits you are unfamiliar with. Why? The fact is that some knowledge goes a long way. Even if you don’t know the answer to a question, it’ll help you to eliminate one or more of the incorrect answers. This leads me on to the next tip.
  5. Guess! Questions in R02 are marked positively so if you guess and get it wrong, you don’t lose anything. If you get it right then, bingo, one mark closer to the pass mark. Use a process of elimination to reduce the likely number of options but if in doubt, guess. Never leave a question unanswered.
  6. Focus on chapters 1 and 6 CII R02 study text. I’ve already mentioned these chapters in tip number 3 but I want to make another point here. This is where the content of the pesky multiple-response questions can be found. These are much harder than the standard questions that require one answer from four answer questions. They typically account for 28 of the 100 questions in the R02 exam. It’s difficult to pass if you don’t get around half marks on these.
  7. Practice, practice, practice. There really is no substitute for answering R02 Knowledge Checker practice questions such as the ones you will find on the CII’s RevisionMate. Start using these early on in your preparation. Most people learn from their mistakes – so make lots of them during your prep so you don’t make them in the exam.  Don’t leave them until the last minute.
  8. Complete the R02 CII exam guide at least twice. Do this under exam condition so you get a feel about what it’ll be like in the exam. Also get familiar with the style of the questions – this is the best guide there is as to what your actual exam will look like.
  9. Read the exam questions twice. Trust me, if the question gives you information, you’ll need to use it somehow. The CII doesn’t give information to just ‘pad out’ a question. So read the question twice and ask yourself: ‘how do they expect me to use this information?’.
  10. Take a calculator into the exam. Around 19 of the first 72 questions typically will need a calculator. If you are lucky, some of the calculations will be around stamp duty land tax or how much a family can collectively contribute into ISAs. If you are unlucky, you may be asked to calculate dividend cover, running yields and the time value of money so make sure you practice these and be familiar with your calculator.

R02 Resources

Click here for our FREE practice questions

Click here for the CII exam guide

Be prepared. Good preparation leads to success. If you want to know how you can learn on the go and fit it in around everything else, click here for details.

Until the next time.

Ian Patterson

Ex-examiner and author of the current CF8, J07, and AF6 CII study texts

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