Free CISI Investment, Risk & Taxation practice questions

Not quite. The answer is D.

Liquidity is the ease and speed with which an investment can be turned into cash to meet spending needs, which is why money that may be wanted at short notice is held on deposit. Inflation risk is the loss of buying power that cash suffers over time, a drawback of holding a deposit rather than the reason it suits withdrawals at short notice. Modified duration measures how far a bond's price moves when yields change, and convexity describes the curve in that price and yield relationship; neither says anything about how quickly a deposit can be drawn.

Not quite. The answer is B.

The P/E ratio is the market price per share divided by EPS: 240p divided by 20p gives 12. Dividing EPS by price instead produces the earnings yield of about 8.3%, a different measure, while multiplying the two figures has no analytical meaning.

Not quite. The answer is D.

Compound interest applies FV = PV x (1 + r)^n, so 8,000 x 1.05^4 = GBP 9,724. The GBP 9,600 figure wrongly uses simple interest (4 x 5% = 20% of the original sum), which ignores the interest earned on accumulated interest.

Not quite. The answer is D.

The standard personal allowance for 2025-26 is £12,570 and it is withdrawn at the rate of £1 for every £2 of adjusted net income above £100,000. It is not available only to basic rate taxpayers, since higher and additional rate taxpayers receive the same allowance until the taper removes it. £3,130 is the blind person's allowance, an addition for registered blind individuals rather than an allowance restricted to savings income. £1,000 is the personal savings allowance for a basic rate taxpayer, given against savings interest rather than only against dividend income, where the separate allowance is £500.

Not quite. The answer is B.

An authorised open-ended fund issues and cancels units as money flows in and out, and prices them from the net asset value of the underlying portfolio. Wide borrowing powers belong to the closed-ended investment trust, whose share count is fixed, and only a closed-ended vehicle can stand at a discount, because its shares are traded between investors rather than dealt with the manager.

Not quite. The answer is D.

A wrap platform levies its own fee in addition to the charges on the underlying funds, and that extra layer is what makes platforms more cost-effective for larger portfolios, where the fee is spread across more capital. The answer that fund charges are waived above a threshold invents a discount that platforms do not offer, since the underlying managers still levy their own charges. The answer that compensation cover scales with the portfolio is wrong because deposit protection for platform cash is a fixed limit per person per firm and does not increase with the amount held. The answer linking market access to portfolio size is wrong because it is the platform's limited asset range, not the client's wealth, that can confine the adviser to restricted advice.

Not quite. The answer is C.

A firm may hold itself out as independent only where it assesses a sufficient range of relevant products from across the market without bias. A restricted adviser must say so, and must explain the nature of the restriction. Being restricted does not remove the duty to give suitable advice, the requirement to provide the client with a suitability report or the right to levy an adviser charge for the advice, and a restricted adviser is entitled to provide the client with one provider's products.

Not quite. The answer is D.

Benchmarks matter because they help measure managers' performance, give clients and trustees a reference point, and modify manager behaviour. They cannot guarantee outperformance or remove systematic risk, and fee structures remain separately important because together with benchmarks they can distort behaviour.

Not quite. The answer is A.

Crediting interest monthly means later months earn interest on interest already credited, so the annual equivalent rate exceeds the nominal 4.8% quoted. It equals the nominal rate only where interest is credited once a year, and it never falls below it. The AER is a gross figure, so the nominal 4.8% rate reduced by basic rate income tax at source describes a net rate convention rather than the AER.

Not quite. The answer is C.

EPS is net profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares: £4.5 million divided by 15 million is £0.30. Dividing the shares by the profit inverts the calculation and wrongly gives £3.33.