Free CISI Investment, Risk & Taxation practice questions

Not quite. The answer is D.

Liquidity is defined as the ease and speed with which an investment can be converted into cash to meet spending needs, a key reason for holding cash on deposit. Compounding, by contrast, describes earning interest on previously credited interest, not the accessibility of funds.

Not quite. The answer is C.

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 personal allowance for 2025-26 is £12,570. £11,310 is what remains after a full marriage allowance transfer, £3,130 is the blind person's allowance, and £17,570 is the income level at which the starting rate for savings is fully lost.

Not quite. The answer is C.

Open-ended funds issue new units/shares when investors buy and cancel them on redemption, so the size varies with demand. A fixed share count traded on an exchange, and pricing set by supply and demand, describe a closed-ended fund; wide borrowing powers also belong to closed-ended funds.

Not quite. The answer is D.

Capacity for loss is the objective ability to absorb losses without harming the client's standard of living, while attitude to risk captures how the client subjectively feels about risk; both are usually gauged by questionnaire. Reversing the two definitions, or treating capacity for loss as a willingness-based or regulator-set figure, misstates the objective versus subjective distinction.

Not quite. The answer is C.

A restricted adviser acts as the agent of the provider, not the client, and must inform the client of the limitations of the service. An IFA acts as the client's agent across the market, while execution-only and discretionary management describe dealing arrangements rather than the independent/restricted distinction.

Not quite. The answer is A.

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 D.

The AER converts a headline rate into the equivalent return if interest were compounded and paid annually, so accounts crediting interest at different frequencies can be compared fairly. It is quoted gross, so it takes no account of tax or of inflation, which is captured by the real rate of return.

Not quite. The answer is D.

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.