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1. Chen has $50,000 of his own money to invest. He has a margin loan available to add to this money to purchase Australian shares. The banks loan-to-value ratio (LVR) is 75%. How much does Chen have available to purchase a portfolio?
A. $37,500 B. $150,000 C. $200,000 D. $66,667
3. Billy needs $35,000 per annum to live on in todays dollars. If inflation remains low at 3% for the next 10 years, what amount will have the same buying power in 10 years time?
A. $40,000 B. $47,000 C. $45,000
5. The percentage of share ownership in Australia by the adult population since 1992 has:
A. increased B. remained constant C. decreased D. initially increased then steadily decreased since 2000
6. A share trader will be more likely to sell share futures contracts rather than the underlying shares if the futures price is:
A. lower than the forward price for the shares B. the same as the forward price for the shares C. higher than the forward price for the shares D. none of the above
7. A futures trader who initially buys a share futures contract at $4.10 and subsequently sells a futures contract in the same share at $4.60 will realize what approximate return on a contract of 1,000 shares which required an initial deposit margin of 15%?
A. -72.5% B. 12.2% C. 72.5% D. 81.3%
8. According to the study by Campbell et al (2000) which of the following asset class has the highest variability in real return at a 10 year horizon?
A. Equity B. T-Bill C. Long term bond D. Long term bond with matched maturity
9. How many characters are used to denote common stocks on the Australian stock market?
A. 3 B. 4 C. 5 D. 3-5
10. Which of the following order type provide the possibility for investors to trade at a better price than the current market price?
A. market order B. limit order C. stock loss order D. none of the above
14. Mickey House bought 1,000 shares in Dizney Pty Ltd and WaltD Pty Ltd and received the following amounts in the 200607 financial year. Salary $73,567, $4,000 unfranked dividends from WaltD P/L and $1,000 in cash dividends franked to 100% from Dizney Pty Ltd. $3,000 of allowable deductions. What is Mickeys taxable income?
A. $72,781 B. $72,567 C. $75,567 D. None of the above
15. Martin is age 67 and Sheila is age 64. They are home owners. They used their small superannuation savings to pay off their mortgage, credit card debt and the mortgage on their investment property (valued at $360,000) and paying $18,000 p.a. rent. They have one car valued at $10,000, contents valued at $12,000. They have a share portfolio valued at $185,000 and a bank account with $7,000 in it. What are the factors that will limit their aged pension?
A. None they should receive a full pension B. The combination of rental payments and deemed income means that they will not pass the income test C. They will not be able to pass the assets test because of the share portfolio and the investment property D. They are likely to receive a part pension, limited by the Assets test
16.
Many elderly people are asset rich and income poor but
17. Suppose that CBA announces that it will be buying 5 million of its own shares. Which of the following is true?
(A) The transaction takes place in the primary market and the number of CBA shares on issue changes. (B) The transaction takes place in the primary market and the number of CBA shares on issue does not change. (C) The transaction takes place in the secondary market and the number of CBA shares on issue changes. (D) The transaction takes place in the secondary market and the number of CBA shares on issue does not change.
18. You decide to purchase 5,000 ABC shares at $7 each using a 40% margin loan. Over the next two weeks the price of the shares goes up to $9 each and there have not been any dividends. Ignoring the interest costs which of the following applies?
(A) You have borrowed $14,000 and your return on equity is 71.43% (B) You have borrowed $14,000 and your return on equity is 47.62% (C) You have borrowed $21,000 and your return on equity is 71.43% (D) You have borrowed $21,000 and your return on equity is 47.62%
19.
funds?
a. An investment in a managed fund represents an ownership position in the fund. b. Income distributions are passed through to unitholders but capital gains from the sale of securities are retained within the fund. c. Investors in managed funds achieve a higher level of diversification than they could otherwise achieve. d. Fund investments can be started with a modest capital outlay.
20.
21.
described as
a. better than the market. b. equal to the market. c. worse than the market. d. very volatile.
22.
a. Investors buy units directly from the fund. b. Trading in units can take place between individual investors. c. Unlisted funds are the dominant type of managed funds. d. Transactions in unlisted funds take place at prices based on current market value.
23.
Information for XYZ Managed Fund: BEGINNING of the year END of the year $9.25 $9.00
$7.50 $7.75
Income distributions over the year $1.20 Capital gains distributed over the year $0.90 Using the information above, the holding period return (based on share price) for ABC Managed Fund is
a. 18.0 percent. b. 26.4 percent. c. 43.2 percent. d. 51.3 percent.
24.
Max and Betty want to know how much they can borrow from
the bank if they can afford to repay $2,400 per month for 25 years. If interest rates are at 8.5%, how much (approximately) will they be able to borrow?
(a) $300,000 (b) $720,000 (c) $55,000 (d) $25,000
25.
ownership?
(a) Interest rate risk (b) Rates (c) Illiquidity (d) Capital gains tax main residence exemption
26.
wish to use as a deposit towards the purchase of their first home. They have seen a home for $500,000 that they would like to purchase. Approximately how much would the fortnightly repayments be if they were take out a loan for 20 years and interest rates were 9%?
(a) $1,600 (b) $3,100 (c) $1,450 (d) $2,200
27.
existing family home worth $420,000 and buys a new home worth $270,000. She puts the difference into a managed fund paying 8% p.a. She has no other investments, other than $10,000 in a bank account paying 2% p.a. Which of the following statements is true?
(a) Robyns age pension will not be affected. (b) Robyns age pension will be reduced as a result of the income test. (c) Robyns age pension will be reduced as a result of the assets test. (d) Robyns age pension will increase as a result of the assets test.
28.
(a) People who rent accommodation and who are entitled to some level of the Age Pension may also obtain Rental Assistance. (b) Retirees who own their own home can have a higher level of assessable assets and still be entitled to the pension. (c) Many retirees and people anticipating retirement find themselves income rich and asset poor. (d) When downsizing, the equity in the home advantages the bank.
29.
A Whole of life B Disability policy C Private Medical Insurance D Total and Permanent disablement policy
31.
A self insurance B often used when losses are substantial C occurs when likelihood of loss is frequent D None of the above 32.
A qualifying period is
A the waiting period B the period during which the insured has elected to receive no benefits C commonly offered by insurers as 14, 30, 60 or 90 days D all of the above
33.
34.
A property location B previous claims history C previous payment history D property location and previous claims history
35.
36.
37.
38.
has to her self-managed superannuation fund. Which investment can she transfer to her fund without being in breach of the superannuation standard that restricts the transfer of certain investments to her self-managed superannuation fund:
(a) a motor vehicle which is used in her business to deliver goods and is equal in value to 10% of her fund (b) an share in an unlisted public company (c) real estate which is used solely for business purposes and is equal in value to 60% of her fund (d) a holiday house she owns on the coast.
40. To qualify for the full co-contribution of $1500 for the year ended 30 June 2008 one requirement to be met is that you:
(a) have an income, including reportable fringe benefits, of no more than $38,980 for the year (b) be 75 or younger (c) earn some income from employment or self-employment (d) lodge an income tax return for the year
1 An LVR of 75% means that Chens debt as a percentage of the total value of his portfolio cannot go above 75%. Therefore if Chen already has $50,000 of his own money, he can purchase a portfolio up to $50,000/(1-0.75). Answer: (c)
3 Workings: 35000 X 1.03 10 Answer: (b) 4 Workings: pp399-400 Answer: (b) 5 A 6 C 7 D 8 A 9 A 10 B 11 D 12 Answer: c Payment for services has already been made and the gift cannot be seen as payment in kind and the motives of the donor. Note that the fact it is non-convertible to cash and is of small monetary value is not the reason for it not being income. 13 Answer: a) If the collectables cost base exceeds $500 the collectable irrespective of its use is subject to capital gains tax on disposal.
14 Answer D) Taxable income is assessable income less allowable deductions. Assessable income is salary, unfranked dividends, the franked dividend and the franking credit (1000 x 3/7).
15 D The Assets test is the one that most usually limits the amount of pension a person earns. This is basically because the use of deeming figures where are generally lower than actual income receipts tends to provide a higher pension entitlement.
16 A Many older pe eople bought the eir home es a long g time a ago and the t value of the home ha as increa ased sub bstantial lly. How wever, th he home does not t provid de an inc come str ream. Mos st of th hese peop ple simply worked d to pay y off the eir mort tgage and d other living expenses and have no source of inve estment income. i As the home h is not assess sable for Centre elink pu urposes, their a assets ar re very low as is i their r income. . Thus people p ow wning $1 1 million n properties ma ay be receiving the ful ll pensio on 17 C 18 B
19 20 21 22 23 24 25 26 27
B C B B C A D C B
Robyns s assets for purpose p of assets a test ar re (150,000 plus p 10,000 = 160,000) Note, the izing, Robyn family h home is excl luded from the t assets tes st. Both befo fore and after r the downsi ns
assets fall below the threshold figure for the assets test. Thus answers c & d are incorrect. Robyns income for the purpose of the income test was 3% (Deeming rate) x 10,000 = $3,000 before the downsizing. This was below the amount required to receive the full pension. After the downsizing, Robyns income under the income test was 3% (Deeming rate) x 37,200 plus 5% deeming rate) x (160,000-37,200). Which is equivalent to $279 per fortnight which is above the threshold to receive the full pension. Robyns pension will therefore be reduced. Thus the answer is b.
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29 30 31 32 33 34 35
C D A D A D C
Answer (c) is most correct as personal retirement savings made as superannuation contributions are supplemented by the co-contribution which is paid to the complying superannuation fund by the government. Answer (a) is not correct as this refers to a pension or age retirement system which is funded directly by the government from consolidated revenue. An example is Australias Age Pension. Answer (b) is not correct as this relates to employer based superannuation systems such as the Superannuation Guarantee or the incorporation of superannuation provisions into industrial awards. Answer (d) is not correct as the co-contribution is not funded from employer based sources.
36
The correct answer is (b) as sections 16(4) and 16(5) of the Superannuation Industry (Supervision) Act 1993 defines a standard employer-sponsor fund as a regulated superannuation fund that has at least one standard employer-sponsor who contributes wholly or partly pursuant to an agreement between the employer-sponsor and a trustee of the fund. (refer to p518 of text) The answers to (a), (c) and (d) are incorrect as there is no requirement to have a formal agreement between the fund trustee and a standard employer-sponsor to contribute to the fund.
37 D
The correct answer is (d) as there is a lesser level of compliance required to be satisfied by the fund. This includes reporting to members and for accounting purposes. (refer to page 519 of the text) The answers to (a), (b) and (c) are common to all types of superannuation funds. It could be argued that self-managed superannuation funds have special provisions in section 66 of the
Superannuation Industry (Supervision) Act 1993 which permit a superannuation fund with less than 5 members to acquire some investments from related parties which are not available to the larger funds. An example would be the acquisition of business real property from related parties. However, this is not considered to be a material difference.
38
The correct answer is (c) as the main reason for having a self-managed superannuation fund is the control members/trustees have over the investments and the strategic advantage of timing the buying and selling of the investments. Answer (a) is incorrect as a self-managed superannuation fund is not necessarily cheaper to operate than a similar account in other types of funds. A self-managed superannuation fund also pays tax at the same rate as other types of superannuation entities. Answer (b) is incorrect as it may be true to say that a self-managed superannuation fund provides a greater degree of control over fund investments it is not necessarily cheaper to operate than a similar account in other types of funds. Answer (d) is incorrect as a self-managed superannuation fund does not have access to group insurance rates but it is true to say that there is no requirement to transfer benefits between funds when changing employers.
39
The correct answer is (c). Under the Superannuation Industry (Supervision) Act 1993 a superannuation fund is prohibited from acquiring (transfer or purchase) an asset (investment) from a related party of the fund. However, there are a number of exceptions to the general restrictions such as commercial property, listed securities such as shares in publicly listed companies, certain insurance policies etc. (refer to p524 of the text). Where business property is transferred to the fund there is no limit on the value of the property transferred. Answer (a) is incorrect as the motor vehicle is an in-house asset with a value equal to 10% of the fund. As the fund will be in breach of the in-house assets rules if the motor vehicle was transferred then the transfer is unable to take place. Answer (b) is incorrect as a share in an unlisted public company cannot be transferred to the fund as it is not covered by the exceptions. Answer (d) is incorrect as it is only business property which can be transferred to the superannuation fund from a related party without being in breach of the general prohibition
40
Answer (d) is correct as it is a requirement that a person lodge an income tax return for the year in addition to a number of other requirements to qualify for the co-contribution. (page 528 of text) Answer (a) is incorrect as the lower threshold to qualify for the maximum co-contribution is $28,980 of the year ending 30 June 2008 ($28,000 for the year ended 30 June 2007) Answer (b) is incorrect as the co-contribution is available only for a person who is under 71 years old. Answer (c) is incorrect as the person must earn at least 10% of their total income, plus reportable fringe benefits, from employment and/or self-employment sources.