CMFAS Module 8 (5th Edition) - Mock Paper
1.
Which one of the following is an example of a cash equivalent?
A.
B.
C.
D.
2.
What is the sale of a money market instrument with a commitment by the seller to buy
the security back from the purchaser at a specified price in future known as?
A.
B.
C.
D.
3.
Junk bonds.
Debentures.
Convertible bonds.
Zero-coupon bonds.
Which one of the following is a hybrid security that has features of both fixed income and
equity and gives the holder a right to a fixed dividend?
A.
B.
C.
D.
5.
Commercial paper.
Certificate of deposit.
Banker’s acceptance.
Repurchase agreement.
What are speculative bonds with lower credit ratings known as?
A.
B.
C.
D.
4.
Time deposit.
Commercial paper.
Banker’s acceptance.
Repurchase agreement.
Debenture.
Hybrid debt.
Preferred shares.
Convertible bond.
Company A has issued a bond with a par value of $10,000 with an annual coupon of
3.5%. Given that it currently trades at 85% of par, calculate the current yield of the bond.
IMPORTANT:
For this question, round off the final answer to two decimal places.
A.
B.
C.
D.
6.
3.50%
3.53%
4.12%
4.38%
Which one of the following statements about investing in ordinary shares is TRUE?
A.
B.
C.
D.
Profits are guaranteed.
Ordinary share investments act as an inflation hedge.
Ordinary share investments are less liquid than corporate bonds.
Ordinary shareholders rank ahead of preference shareholders for dividends.
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CMFAS Module 8 (5th Edition) - Mock Paper
7.
Which one of the following statements regarding an annuity is TRUE?
A.
B.
C.
D.
8.
Reinvestment risk is highest for a bond with:
A.
B.
C.
D.
9.
Swaps.
Warrants.
Put options.
Extended settlement.
What is a standardized, transferable exchange-traded contract between two parties
giving the holder the obligation to take delivery under the contract terms known as?
A.
B.
C.
D.
12.
There is no expiration date.
It is used as a hedging tool.
Only long positions are allowed.
It is traded on the mercantile exchange.
What are transferable subscription rights also known as?
A.
B.
C.
D.
11.
Long maturity and low coupon rate
Long maturity and high coupon rate
Short maturity and low coupon rate
Short maturity and high coupon rate
Which one of the following statements regarding extended settlement is TRUE?
A.
B.
C.
D.
10.
It is a low-cost method of diversifying one’s portfolio.
A deferred annuity is only purchased with periodic payments.
An immediate annuity is always purchased with a single premium.
An annuity acts as an insurance against living a shorter than expected life.
Swaps.
Options.
Futures.
Warrants.
Golden Financial is a US-based insurance company that has issued US$10 million
worth of bonds. Abba Corporation is a Swiss-based manufacturer that has raised
CHF$10 million from issuing bonds. Both companies enter into an agreement to
exchange the principal amount and interest payments for both bonds for five years.
During the swap, Golden Financial will receive CHF$10 million and pay interest in Swiss
francs while Abba Corporation will receive US$10 million and pay interest in US$. What
is this swap known as?
A.
B.
C.
D.
Currency swap.
Interest rate swap.
Debt-to-debt swap.
Debt-to-equity swap.
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CMFAS Module 8 (5th Edition) - Mock Paper
13.
Which one of the following derivatives does NOT have a fixed expiry date?
A.
B.
C.
D.
14.
Which one of the following factors is the MOST likely reason for investors in real estate
to suffer from negative cash flows?
A.
B.
C.
D.
15.
Equity market.
Futures market.
Options market.
Over-the-counter market.
Which of the following is NOT a condition that creates an efficient financial market?
A.
B.
C.
D.
18.
Structured products.
Listed company shares.
Initial public offers for equities.
Offers of new fixed income securities.
Which one of the following markets does NOT use a centralized exchange to carry out
transactions?
A.
B.
C.
D.
17.
Rental income being lower than mortgage servicing costs.
Lack of a central market to provide liquidity in transactions.
Real estate valuation not keeping pace with the inflation rate.
High initial transaction costs when purchasing the real estate.
Which one of the following instruments is sold in a secondary market?
A.
B.
C.
D.
16.
Options.
Warrants.
Extended settlement.
Contracts for Difference.
Numerous buyers and sellers.
High transaction costs related to trade.
Information efficiency where prices adjust rapidly to new information.
All information is available to allow informed investment decisions to be made.
In a primary market, the security is purchased directly from the:
A.
B.
C.
D.
issuer
investor
exchange
aftermarket
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CMFAS Module 8 (5th Edition) - Mock Paper
19.
A financial asset with a maturity of _____________ would be traded in the capital
market.
A.
B.
C.
D.
20.
21.
one day
four years
two weeks
three months
A company has listed shares on the Singapore Exchange Limited. Which one of the
following does NOT describe the financial market in which the shares are traded?
A.
Capital market where perpetual or long-dated financial assets are traded.
B.
Equity market where financial assets have a residual claim on the issuers.
C.
Money market where financial assets of less than one year’s maturity are traded.
D.
Secondary market where investors purchase securities from another investor
rather than the issuer.
Joey has just bought 40,000 units of Company A’s shares at a price of S$2 per share.
One year later, the price appreciated to S$3 per share and she sold all the shares.
During this period, she received dividends amounting to S$0.15 per share. Dividends
are subject to individual income tax. Assuming that Joey’s marginal income tax rate is
20% and there is no capital gains tax for individuals, calculate her after-tax investment
return.
IMPORTANT:
For this question, round off the final answer to one decimal place.
A.
B.
C.
D.
22.
46.0%
47.5%
56.0%
57.5%
What is the risk that interest rate changes may negatively affect the value of one’s
investment known as?
A.
B.
C.
D.
Country risk.
Financial risk.
Business risk.
Marketability risk.
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CMFAS Module 8 (5th Edition) - Mock Paper
23.
24.
Which one of the following is one of the reasons why investors choose to invest in
sector-specific funds?
A.
They believe a specific sector will outperform the overall market.
B.
They believe sector funds are less risky compared to the overall market.
C.
They believe sector funds have low correlation with other asset classes.
D.
They believe sector funds provide a steady income stream in all economic
conditions.
Assume you have bought a unit trust which generates an annual return of 10% and has
a beta of 2.6 and standard deviation of 5.3%. The 10-year government bond yield is 4%.
Given the above information, calculate the Treynor ratio of the unit trust.
IMPORTANT:
For this question, round off the final answer to two decimal places.
A.
B.
C.
D.
25.
1.13
1.89
2.31
2.40
Given that the risk-free rate is 3%, the market risk premium under the Capital Asset
Pricing Model (CAPM) is 5%, the actual return of the portfolio is 15%, and the portfolio’s
alpha is 3%, calculate the beta of the portfolio.
IMPORTANT:
For this question, round off the final answer to two decimal places.
A.
B.
C.
D.
26.
1.0
1.5
1.8
2.4
Which one of the following formulas measures the value added by a fund manager per
unit of risk taken relative to a specific benchmark?
A.
B.
C.
D.
Sharpe ratio.
Treynor ratio.
Jensen’s alpha.
Information ratio.
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
27.
An investor has placed S$500 in the following two accounts which both pay the same
nominal rate of interest:
- Account A uses simple interest to credit interest to the client’s account at the end of the
year.
- Account B uses yearly compound interest to credit interest to the client’s account at the
end of the year.
Based on the method of interest computation, which one of the following statements
about the two accounts is TRUE?
A.
B.
C.
D.
28.
An investor has purchased a house for S$400,000. It is expected to grow at a compound
rate of 2% annually. Calculate the value of the house after 17 years, to the nearest
S$1,000.
A.
B.
C.
D.
29.
Both accounts will grow by a constant amount each year.
The ending balance of Account B will be lower at the end of Year 5.
The interest credited for Account B will be lower at the end of Year 2.
Accounts A and B will have different ending balances after the end of Year 1.
S$536,000
S$560,000
S$596,000
S$620,000
Assume that your client has placed S$50,000 in a single premium policy with a maturity
value of S$53,000 at the end of Year 3. Calculate the annual compound interest rate
that the single premium will earn.
IMPORTANT:
For this question, round off the final answer to the nearest unit.
A.
B.
C.
D.
30.
1%
2%
3%
4%
Consider a deposit of S$500 that is placed into two separate accounts. One account
enjoys 5% simple interest per year, while the other account enjoys 5% compound
interest per year. Calculate the difference in the balance of the two accounts after three
years, to the nearest dollar.
IMPORTANT:
All preliminary calculations should be rounded off to the nearest two decimal
places and the final answer should be rounded off to the nearest unit.
A.
B.
C.
D.
S$0
S$2
S$4
S$8
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
31.
A loan of S$50,000 is charged a nominal annual interest rate of 6%. The interest is
payable every six months. Assuming that the interest is compounded, calculate the
effective interest rate on this loan.
IMPORTANT:
All preliminary calculations and the final answer should be rounded off to the
nearest two decimal places.
A.
B.
C.
D.
32.
3.00%
3.45%
6.00%
6.09%
A loan of S$100,000 is charged at a nominal annual interest rate of 4%. The interest is
payable every six months. Assuming that the interest is compounded, calculate the
effective interest rate for this loan.
IMPORTANT:
All preliminary calculations and the final answer should be rounded off to the
nearest two decimal places.
A.
B.
C.
D.
33.
Which one of the following statements about a long investment time horizon is FALSE?
A.
B.
C.
D.
34.
1.33%
2.00%
3.34%
4.04%
The risks associated with investing in risky assets tend to fall.
The expected returns on the assets are likely to remain quite constant.
Standard deviation of the investment tends to increase for longer time horizons.
Assets have more time to recover their losses in a long investment time horizon.
Which one of the following statements about the CPF Investment Scheme (CPFIS) is
TRUE?
CPF members:
A.
May use the CPF Ordinary Account to invest in exchange traded funds.
B.
Are able to withdraw profits made from investments as cash under the CPFIS.
C.
Who are aged 18 years and below are able to use their CPF savings for
investments.
D.
Who are aged 62 years and above are required to purchase new endowment
policies with their CPF savings.
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
35.
Which one of the following is a MAJOR risk of market timing?
A.
B.
C.
D.
36.
An investor wishes to reduce the potential risk of a volatile market. He is one year away
from retirement and is very close to meeting his retirement objectives. Which one of the
following instruments is LEAST suitable for this investor?
A.
B.
C.
D.
37.
Risk level of investments rises.
Paying high sales charges for frequent trading.
Portfolio deviating from its original investment strategy.
Missing the best trading days hence impacting portfolio returns.
Equity funds.
Short-dated bonds.
Long-dated bonds.
Money market funds.
Assuming that all other factors are constant, which one of the following individuals is
MOST suited to invest in a higher-risk investment?
An investor with a/an:
A.
B.
C.
D.
38.
Which one of the following statements BEST describes a portfolio with a long-term
investment time horizon?
A.
B.
C.
D.
39.
The portfolio should consist mainly of cash.
The portfolio is likely to be invested largely in equities.
The portfolio should only invest in money market funds.
The longer the time horizon, the higher the risk the portfolio is exposed to.
What is the front load fee also known as?
A.
B.
C.
D.
40.
higher need for liquidity
low tolerance for volatility
immediate financial need
longer investment time horizon
Sales charge.
Redemption fee.
Performance fee.
Brokerage charge.
Which one of the following statements regarding custodian fee is CORRECT?
A.
B.
C.
D.
It is payable to the fund manager.
It is included in the redemption fee.
It is always a percentage of the fund size.
It is levied for safekeeping of securities in a unit trust.
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
41.
Which one of the following correctly reflects the bid price of the fund?
A.
B.
C.
D.
42.
In the evaluation of unit trusts, which one of the following statements regarding
transaction costs is TRUE?
A.
B.
C.
D.
43.
Does not use leverage.
Profits are not guaranteed.
Dividends received are not reinvested.
Large capital outlay required for investing.
Which one of the following represents a form of asset-backed security that consists of
many layers and is typically issued by a special purpose entity?
A.
B.
C.
D.
46.
Switching options.
Style of fund manager.
Investment time horizon.
Availability of regular investment plans.
Which one of the following is one of the RISKS of investing in a unit trust?
A.
B.
C.
D.
45.
Feeder funds have low expense ratios.
Funds with low transaction costs are preferred.
Custodian fees are not part of investors’ transaction costs.
Funds with small net asset values have low expense ratios.
For an investor seeking high capital appreciation within a six-month period, which one of
the following factors must he consider before buying a unit trust?
A.
B.
C.
D.
44.
Cash flow per unit of the fund.
Sales charge per unit of the fund.
Net asset value per unit of the fund.
Brokerage charge per unit of the fund.
Exchange traded fund.
Contracts for Difference (CFD).
Real estate investment trust (REIT).
Collateralized debt obligation (CDO).
Kenny is a middle-aged working professional with a few years of investment experience
and a low risk appetite. Currently, Kenny’s investment portfolio consists of government
bonds and time deposits. He would like to diversify his portfolio to include other asset
classes and gain exposure to Singapore blue chip companies. Ideally, he hopes to get
an investment return of 5-10% per year. With a capital outlay of S$5,000, which of the
following products would you recommend Kenny to buy?
A.
B.
C.
D.
Hedge fund.
Fixed income fund.
Money market fund.
Exchange traded fund.
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
47.
What type of fund seeks ABSOLUTE returns in any market condition?
A.
B.
C.
D.
48.
Which one of the following is one of the DISADVANTAGEs of investing in a hedge
fund?
A.
B.
C.
D.
49.
Highly concentrated bets.
Principal is not guaranteed.
Arbitraging on price anomalies.
Investors cannot select the basket of instruments invested in.
Which one of the following is one of the BENEFITs of investing in a fund of hedge funds
(FOHFs)?
A.
B.
C.
D.
50.
Hedge fund.
Feeder fund.
Umbrella fund.
Fixed income fund.
Lower leverage than underlying hedge funds.
Lower minimum subscription amount than underlying hedge funds.
Guarantees investment returns above that of underlying hedge funds.
No fees charged other than what is charged by underlying hedge funds.
Which one of the following financial instruments usually gives a high payout ratio due to
its ability to distribute cash flows in excess of accounting profits?
A.
B.
C.
D.
Unit trust.
Business trust.
Investment trust.
Real estate investment trust (REIT).
© Singapore College of Insurance
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CMFAS Module 8 (5th Edition) - Mock Paper
Answers to Mock Paper
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© Singapore College of Insurance
A
D
A
C
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B
C
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B
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A
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B
A
B
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B
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C
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B
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