IFA Level 4 Paper 3 Investment June 2017 Ready for PDF · PDF file ·...
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© ICSA, 2017 Page 1 of 20 Please complete this box: Candidate number: as indicated on your admission slip Desk number: If you are using a calculator, please enter the make and model number: Make (company name): Model number: Subject no. 51B Paper 3 Investment Tuesday afternoon, 6 June 2017 Time allowed: 1 hour 30 minutes Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. The examination paper contains 18 questions and is divided into three sections. You must attempt all questions in Section A and Section B and two questions in Section C. Section A contains 15 marks, Section B contains 30 marks, and Section C contains 30 marks. There are 75 marks available in total for the paper. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 30 minutes in total to answer the questions in Section B, and 20 minutes for each of the questions attempted in Section C. You may continue your answers on a separate sheet of paper if necessary. Separate answer sheets are available from the invigilator. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation.
Transcript of IFA Level 4 Paper 3 Investment June 2017 Ready for PDF · PDF file ·...
© ICSA, 2017 Page 1 of 20
Please complete this box:
Candidate number: as indicated on your admission slip
Desk number:
If you are using a calculator, please enter the make and model number:
Make (company name):
Model number:
Subject no. 51B
Paper 3 Investment Tuesday afternoon, 6 June 2017 Time allowed: 1 hour 30 minutes Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. The examination paper contains 18 questions and is divided into three sections. You must attempt all questions in Section A and Section B and two questions in Section C. Section A contains 15 marks, Section B contains 30 marks, and Section C contains 30 marks. There are 75 marks available in total for the paper. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 30 minutes in total to answer the questions in Section B, and 20 minutes for each of the questions attempted in Section C. You may continue your answers on a separate sheet of paper if necessary. Separate answer sheets are available from the invigilator. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation.
© ICSA, 2017 Page 2 of 20
© ICSA, 2017 Page 3 of 20
Section A Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary.
1 What does it mean if a company is described as being highly-geared?
__________________________________________________________________________ __________________________________________________________________________
(1 mark)
2 Give two reasons why companies select commercial paper (CP) as a means of obtaining
short-term finance.
i__________________________________________________________________________ __________________________________________________________________________ ii_________________________________________________________________________
_________________________________________________________________________
(2 marks)
3 Plain vanilla interest rate swaps involve counterparties exchanging both capital and interest rate streams.
Is this true or false? (Tick one box only) True
False
(1 mark)
4 In the UK, the difference between government expenditure and tax revenue is referred to as:
__________________________________________________________________________ __________________________________________________________________________
(1 mark)
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5 In the financial year 2016/2017, an engineering company made a gross profit of £63 million
(net £35 million). The company’s dividend cover figure was 7. Consequently, the company will:
(Tick one box only)
A retain £5 million for growth and pay £30 million to ordinary shareholders. B retain £9 million for growth and pay £54 million to ordinary shareholders.
C retain £30 million for growth and pay £5 million to ordinary shareholders.
D retain £54 million for growth and pay £9 million to ordinary shareholders.
(1 mark)
6 What aspect of a derivative instrument is derived from an underlying asset?
_________________________________________________________________________ _________________________________________________________________________
(1 mark)
7 Give three conditions which must be fulfilled in order for a perfect market to exist.
i_________________________________________________________________________ __________________________________________________________________________ ii_________________________________________________________________________
_________________________________________________________________________
iii_________________________________________________________________________
_________________________________________________________________________
(3 marks)
8 Give two recognised grades of corporate bond.
i__________________________________________________________________________ __________________________________________________________________________ ii_________________________________________________________________________
_________________________________________________________________________
(2 marks)
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9 Give an example of a way in which a company can help to ensure the success of its rights issue.
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(1 mark) 10 When an issuer calls a ‘callable bond’ there are other, less favourable, options available for the
investor who still wants to invest in bonds. Give two examples of what the investor could do instead. i__________________________________________________________________________ __________________________________________________________________________ ii_________________________________________________________________________
_________________________________________________________________________
(2 marks)
__________________________________________________________________________
Total for Section A = 15 marks
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Section B Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 11 Explain why an increasing number of employers no longer provide defined benefit (DB) pension
schemes to their employees.
_________________________________________________________________________ _________________________________________________________________________
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(6 marks)
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12 Explain how a company can benefit from issuing preference shares.
_________________________________________________________________________ _________________________________________________________________________
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(6 marks)
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13 (i) In relation to gilts, state the purpose of the gross redemption yield (GRY).
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
(2 marks)
(ii) An institutional investor purchased £10 million of UK Treasury 8% 2021 gilts at £133.38 per
£100 nominal.
Showing your workings in the box below, calculate the annual gross redemption yield.
Note: Assume a period of exactly 8 years from the date of purchase to final redemption.
Annual Gross Redemption Yield =
(4 marks)
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14 List the details included in a futures contract specification.
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
(6 marks)
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15 Explain how interest rates are used to influence demand during inflationary and recessionary periods.
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
(6 marks)
__________________________________________________________________________
Total for Section B = 30 marks
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Section C Answer two questions only. Continue your answers on a separate sheet of paper if necessary. 16 Evaluate the potential challenges which investors in both open-ended and closed-ended collective investment schemes may encounter during an economic downturn. (15 marks)
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17 Analyse the factors which may cause a currency’s exchange rate to fluctuate. (15 marks)
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
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18 Ordinary shareholders do not always receive their anticipated returns, in terms of capital growth and
of income. Using appropriate examples, discuss the reasons why ordinary shareholders may not receive their anticipated returns.
(15 marks)
_________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________
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Total for Section C = 30 marks
Total for paper = 75 marks
END
The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.
Do not write on this page – examiner use only Section A Section B Section C
Question Question Question
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4 14 Total
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Total
Marker (full name):
Reviewer (full name):
Clerical check (full name):
Examiner review:
Total marks for paper:
