IMC Unit 1 Mock Exam 1 V19
IMC Unit 1 Mock Exam 1 V19
IMC Unit 1 Mock Exam 1 V19
(IMC)
Tax tables for this syllabus Tax tables used for IMC Syllabus Version 19
Number of questions 85
Time allowed 1 hour 40 minutes
• Standard multiple choice – Candidates select 1 option of 4.
• Item set – Candidates are given a short scenario with several
questions associated with it. The material given in the case
Types of questions used study does not change with the questions.
• Gap fill – Candidates must enter a value into the answer
field. There are specific formatting requirements and these
formatting requirements are always given in the question.
Please click here for all Terms and Conditions pertaining to the Investment Management Certificate.
The mock exam paper should NOT be viewed as a primary source of learning. By its nature, a
mock exam paper will only cover proportion of the learning outcomes. Candidates are strongly
advised to develop a fundamental understanding of the curriculum in order to demonstrate the
competence required to pass the examination.
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Question Allocation
Question allocation across the syllabus is balanced on the guidance of psychometric and industry
specialists. The following question allocation for Version 19 of the IMC is provided as a broad
indication of the relative ‘weighting’ of different parts of the syllabus in IMC examinations from 1
December 2021.
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1. Which of the following is the most likely outcome of an increase in the liquidity
risk of an asset?
3. For how long must a firm keep records of any communicated or approved financial
promotion of personal pension schemes?
(a) 3 years
(b) 5 years
(c) 6 years
(d) Indefinitely
(a) Stewards
(b) Financial institutions
(c) Institutional investors
(d) The Financial Reporting Council
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5. Which of the following investments are subject to Insider Dealing regulations?
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9. Alex is an investment adviser. She personally holds 10,000 shares of XYZ PLC.
Alex thinks the company has excellent prospects with the shares undervalued and
decides to recommend it to her clients. She should:
10. When a financial adviser requires information on a client from a third party, what
must the adviser receive from the client?
(a) An investment firm which deals on its own account by executing customer order flow in
listed securities outside a regulated market
(b) An electronic crossing network which provide liquidity that is not displayed on a
conventional order book of an organised exchange
(c) An exchange for trading non-standardised contracts such as swaps
(d) A quote-driven market for trading stocks and bonds with market makers providing
liquidity
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13. Which of the following is NOT a standard within the CFA Code of Ethics and
Standards of Professional Conduct?
16. An FCA authorised firm has received money from a retail client that it holds before
it is to be invested on behalf of the client. It holds these funds in a bank account.
Which of the following conditions must apply to this account?
(i) It is separate from the account(s) used to hold the firm’s funds
(ii) The firm should take reasonable care in selecting the bank where the account is held
(iii) Other clients’ money should not be held in the same account
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17. According to the majority of academic studies which one of the following is the
most important factor in determining the returns of an investment portfolio?
18. The sponsoring employer of a defined benefit pension scheme has become
insolvent and the pension scheme is unable to pay its liabilities.
Assuming the pension scheme has entered the Pension Protection Fund, what
level of compensation in terms of percentage of benefits does the Fund provide to
those who have NOT yet retired?
Important! You should enter the answer only in numbers strictly using this format: 00
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
19. A business is generally obliged to keep records to enable them to complete and
justify a tax return for what length of time?
(a) 3 years
(b) 5 years
(c) 6 years
(d) Indefinitely
20. An adviser wishes to write materials for circulation to clients. Which of the
following would be permissible according to the CFA Code of Ethics and
Standards of Professional Conduct?
(a) The copying or use of charts and graphs prepared by others without stating the source
(b) The inclusion of excerpts from articles or reports written by investment professionals with
the source quoted
(c) The inclusion of short quotes from research made by economists without referring to the
names of the economists
(d) The use of spreadsheets from external sources without the authorisation of the creator
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21. Which one of the following is NOT a characteristic of the SETS trading system on
the London Stock Exchange?
24. Which regulatory body is responsible for the protection of members of work-based
pension schemes?
(a) The FCA
(b) HM Treasury
(c) The Pensions Regulator
(d) The Financial Ombudsman
25. Which of the following is the first step in the financial planning process for a retail
client?
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26. What is the maximum payout for a compensation claim against an investment firm
declared in default in relation to protected investment business?
(a) £25,000
(b) £85,000
(c) £1,000,000
(d) Unlimited
The next 5 questions are associated with the following case study. The material given
in the case study will not change.
Emma is a 40% taxpayer and her husband Matt is a basic rate taxpayer. They are
considering selling some of their investments. Their investments are:
• £60,000 nominal of Treasury 6% 2024, currently worth £72,000 against a purchase price
of £61,000 paid two years ago by Emma.
• 20,000 ABC shares that Matt bought for £40,000 three years ago that are now worth
£60,000.
• A painting which they bought together five years ago for £25,000 which is now worth
£85,000.
• 20,000 XYZ shares that Emma bought three years ago at a cost of £18,000 that are now
worth £10,000.
The annual CGT exemption for 2021/22 is £12,300. Emma and Matt have not realised any
capital gains or losses for three years. Ignore costs of sale in your answers.
27. What is the maximum number of ABC shares that Matt can sell in 2021/22 without
facing a capital gains tax charge?
Important! You should enter the answer only in numbers strictly using this format: 00,000
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
28. If Emma sells her XYZ shares in 2021/22 and makes no other disposals, for how
long can she carry forward the loss?
(a) 1 year
(b) 7 years
(c) 10 years
(d) Indefinitely
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29. If Emma and Matt sell the painting and Emma also sells her XYZ shares in 2021/22,
what would be the taxable gain for Emma (in pounds)?
Important! You should enter the answer only in numbers strictly using this format: 00,000
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
30. How much capital gains tax would Emma pay if both Matt and she sell the painting
in 2021 /22 (in pounds)?
Important! You should enter the answer only in numbers strictly using this format: 0000
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
31. If Matt sells all of the ABC shares in tax year 2021/22 how much CGT would be
payable on the disposal of these shares (in pounds) assuming any gain made
when adding to his income is within the basic rate tax band?
Important! You should enter the answer only in numbers strictly using this format: 000
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
32. Which of the following is the least significant factor in fund selection?
(a) Charges
(b) Types of investments in the fund
(c) Independence of a fund’s trustees
(d) Whether the fund is an OEIC or unit trust
33. Which one of the following is exempted from applying to the FCA for authorisation
to carry on investment business in the UK?
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34. For how long must an investment firm keep records of client categorisations in
relation to MiFID business?
(a) 1 year
(b) 2 years
(c) 3 years
(d) 5 years
36. Leigh makes a gift of her second home in York to her daughter Rebecca and
retains no financial interest in the home. How much longer does Leigh need to live
before the gifted home is no longer counted as part of Leigh’s estate and subject
to an inheritance tax liability?
(a) 3 years
(b) 5 years
(c) 6 years
(d) 7 years
37. A higher rate taxpayer receives total dividend income of £6,000 in the 2021/22 tax
year. How much additional tax will they have to pay on their dividend income?
Important! You should enter the answer only in numbers strictly using this format: 000
Do not include spaces, letters or symbols, (but decimal points and commas should be
used if indicated).
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38. Under which one of the following circumstances is a UK investment firm normally
required to undertake enhanced due diligence before undertaking investment
business with a client?
40. Dwayne buys shares in Orton Plc for £7,000 in a stocks and shares ISA. He sells
them the same year for £20,000. The capital gains tax (CGT) allowance is £12,300
and CGT is levied at 10%. How much tax is payable?
(a) £2,000
(b) £1,300
(c) £130
(d) £0
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42. Which one of the following services is NOT classed as an ancillary service under
the Markets in Financial Instruments Directive (MiFID)?
43. An investor has the objective of building a large fund to pay for a holiday home in
10 years’ time but is concerned about capital risk and therefore decides to invest
most of their wealth in fixed interest deposits. Which of the following risks is this
strategy likely to increase?
(i) Inflation risk
(ii) Shortfall risk
(iii) Operational risk
44. A limited company structure has been used to purchase a residential property in
London for £3,000,000. How much Stamp Duty Land Tax is payable on this
transaction? (expressed in pounds)
Important! You should enter the answer only in numbers strictly using this format:
000,000
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
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The next 6 questions are associated with the following case study. The material given
in the case study will not change.
Six months ago, Hannah had a full financial review, which included a review of her life
insurance. At the time of the review she agreed with her adviser that her existing cover was
adequate.
She is now meeting her adviser to review her investment portfolio. As part of her portfolio
she holds £95,000 in gilts. Hannah purchased the gilts for £87,000 and they provide £1,750
gross income every six months. Hannah’s main financial objective is to ensure she has
sufficient income when she retires in 25 years.
Hannah is married, with three children, and her elderly father also lives with the family. She
is a higher rate taxpayer, and her monthly expenditure is currently equal to her income.
Hannah also has a savings account that pays interest of £500 per annum, fully utilising her
personal savings allowance as a higher rate taxpayer.
For the purposes of this question assume that she is a higher rate taxpayer and has used all
available capital gains tax allowances during the current tax year.
45. What would be the annual income tax saving if she held her entire gilt portfolio in
an ISA?
(a) £700
(b) £1,400
(c) There would be no income tax saving as gilts are free of income tax
(d) There would be no income tax saving as Hannah would still be unable to reclaim the tax
credit
46. With reference to income tax liability only, which of the following investments
would be considered least tax efficient for Hannah?
47. What would be the capital gains liability if Hannah sold her gilts portfolio during
the current tax year?
(a) £1,440
(b) £2,240
(c) £3,200
(d) There would be no capital gains liability
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48. Under FCA regulations, which document is Hannah's financial adviser required to
use to record any new information she provides?
49. Based on the information provided, what is Hannah’s adviser most likely to
consider the first priority?
(a) Increasing her life insurance cover
(b) Providing funds for her children's school fees
(c) Reviewing her pension arrangements
(d) Arranging long-term care funding for her father
50. Based on the information given, which factor is most likely to increase Hannah’s
tolerance for investment risk with regard to her primary financial objective?
(a) Her time horizon
(b) Her monthly income position
(c) Her tax status
(d) Her family situation
51. Which of the following would make a professional client eligible to be treated as a
qualified investor?
(a) They have worked in the financial sector in a professional position requiring knowledge of
security investment for seven months and have a security portfolio worth €2.5 million
(b) They have a security portfolio worth €0.25 million and have carried out thirty significant
transactions on securities markets for each of the last ten quarters
(c) They have total wealth exceeding of €25 million
(d) They have carried out twenty transactions over £1,000 on securities markets for each of
the last four quarters, and have worked in the financial sector in a professional position
requiring knowledge of security investment for two years
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52. Which one of the following is an advantage achieved by a gilt-edged market maker
when trading through an inter-dealer broker?
53. Sebastian works for a private client wealth management firm as a dealer. He is
asked to purchase a number of shares across a variety of accounts. The orders
are only partially filled, though. According to the CFA Code of Ethics and
Standards of Professional Conduct, he should:
(a) Give priority to those paying most commission
(b) Allocate the shares pro rata according to the order size
(c) Allocate the shares randomly
(d) Allocate the shares to the best performing accounts first
54. A firm providing investment advice to retail clients can use dealing commission to
purchase:
(a) Connectivity services
(b) Provision of original research
(c) Order and execution management systems
(d) Nothing as this would be classed as an inducement
55. Which legal document is required when one person wishes to give another person
full power to make all decisions with regard to their financial affairs?
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56. One of the criteria for determining whether the Competition and Markets Authority
investigates a merger is called the 'turnover test'. What is the minimum level of UK
turnover necessary for the 'turnover test' to qualify a transaction for investigation
(in £m)?
Important! You should enter the answer only in numbers strictly using this format: 00
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
57. A client requires money in two years’ time for the purchase of a property. Which
type of investment may be the most appropriate?
(a) Mid-cap equities
(b) Commodity futures
(c) Commercial property
(d) Fixed interest deposit
60. Which one of the following statements about client categorisation is NOT correct?
(a) A firm is not permitted to treat a retail client as a professional client
(b) A firm is not permitted to treat a professional client as an eligible counterparty
(c) The only requirement for treating a retail client as a professional client is that the client
passes a “quantitative” test
(d) A firm may treat a professional client as a retail client if the client requests this
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61. Up to what age is an individual entitled to tax relief on contributions to a registered
pension scheme?
(a) 60 years
(b) 65 years
(c) 70 years
(d) 75 years
62. A retail client has the right to cancel the purchase of a life policy in what period (in
days) after the purchase?
Important! You should enter the answer only in numbers strictly using this format: 00
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
63. Which of the following investment services will normally incur VAT at the standard
rate?
(i) Arranging the sale of a retail investment product
(ii) Nominee services
(iii) Investment advice
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65. Which one of the following is least likely to affect a client’s attitude to risk?
(a) The timescale of the investment
(b) Recent volatility in the stock market
(c) Whether the client is married
(d) The asset allocation of the client’s existing investments
67. Investco is a FCA regulated firm providing investment advice. Which of the
following kinds of information must it provide to clients?
68. Under which of the following circumstances would a UK investment firm be least
likely required to undertake enhanced due diligence before undertaking
investment business?
(a) The client is a credit institution subject to the third Money Laundering Directive
(b) Business is conducted on a non-face to face basis
(c) In respect to correspondent banking relationships
(d) The client is a politically exposed person
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69. In the event of the death of an individual, who is normally responsible for the
process of probate?
70. To which body must a dual-regulated firm apply to vary its Part 4A permission?
(a) Gilts
(b) UK equities
(c) Overseas equities
(d) Cash deposits
72. What is the amount of Stamp Duty Reserve Tax (SDRT) payable on a purchase of
shares equal to £20,000?
(a) £0
(b) £100
(c) £500
(d) £1,000
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73. Under which of the following circumstances may the Financial Ombudsman
dismiss a complaint referred to it?
(i) It is just over one year since the event which lead to the complaint took place
(ii) The complainant has not suffered financial loss, material inconvenience or material
distress
(iii) It considers the firm has already made a reasonable offer of redress
74. Harry is an investment manager whose clients tend to be very high net worth
individuals. At a recent charity function, Harry suggests that the organisation
sends a letter to some of his clients asking for donations. Later, Harry provides
the charity with the names and contact details of a number of his clients.
According to the CFA Code of Ethics and Standards of Professional Conduct
which of the following is true of Harry's actions?
(a) Harry can disclose client contact details, but not information on their investment portfolios
(b) Harry should not have disclosed the identity and contact details as it does not benefit his
employer
(c) Harry should not have disclosed the identity and contact details of his clients without their
prior approval
(d) Harry can disclose the identity and contact details as it is for a worthy cause
75. What is the settlement period for gilts made through CREST?
(a) T+1
(b) T+2
(c) T+3
(d) T+5
76. Who would a member who wishes to appoint another person to vote as they think
fit on their behalf at a company meeting appoint at their representative?
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77. Which of the following are CFA Institute Standards of Professional Conduct?
(a) Professionalism; Integrity of Capital Markets; Duty of Independence
(b) Professionalism; Regulatory and Legal Obligations; Duty to Employer
(c) Professionalism; Duties to Clients; Responsibilities as a CFA Institute Member or CFA
Candidate
(d) Conflicts of Interest; Duty of Care; Responsibilities as a CFA Institute Member or CFA
Candidate
78. Why is capital allocation thought to be more efficient when markets have high
liquidity and price transparency?
79. An employee of an FCA regulated firm becomes suspicious of the actions of her
client who has recently been involved in the rapid turnover of bearer securities
with an unknown counter-party. To whom should she report her suspicions?
(a) The police
(b) The FCA
(c) The firm's money laundering reporting officer
(d) The client
80. How many years does an investment in enterprise investment scheme (EIS) shares
have to be held before a disposal is NOT subject to capital gains tax?
(a) 3 years
(b) 4 years
(c) 5 years
(d) 6 years
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81. Persons discharging managerial responsibilities must notify the listed company of
a personal transaction in that company’s shares within:
Do not include spaces, letters or symbols (but decimal points and commas should be
used if indicated).
84. Annual reports of UK listed companies are required to declare holdings of shares
by owners other than directors when they exceed a specified percentage of any
class of voting capital.
What is the percentage?
(a) 1%
(b) 2%
(c) 3%
(d) 6%
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85. In relation to the Client Money rules a designated bank account has which of the
following characteristics:
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Answers
1 c 2 d 3 c 4 c 5 b
6 c 7 d 8 c 9 b 10 d
11 b 12 b 13 c 14 c 15 d
16 c 17 c 18 90 19 c 20 b
21 b 22 b 23 c 24 c 25 d
26 b 27 12300 28 d 29 9700 30 3540
31 770 32 d 33 c 34 d 35 d
36 d 37 1300 38 c 39 c 40 d
41 b 42 d 43 b 44 450000 45 b
46 b 47 d 48 d 49 c 50 a
51 d 52 b 53 b 54 d 55 d
56 70.00% 57 d 58 a 59 b 60 c
61 d 62 30 63 c 64 a 65 c
66 a 67 c 68 a 69 c 70 d
71 d 72 b 73 c 74 c 75 a
76 b 77 c 78 d 79 c 80 a
81 c 82 d 83 4.00 84 c 85 c
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Mock exam 1 – worked calculations
2. The dividend allowance of £2,000 has already been used against the £15,000 of dividends already
received. So, the additional rate taxpayer will pay tax at the rate of 38.1% on the additional dividend of
£1,296 = £1,296*.381 = £493.78. Hence net dividend = £1,296 - £493.78 = £802.22.
Rounded to the nearest £ gives £802 (answer (d))
27. The shares cost £2 each when bought (£40,000/20,000) and are now worth £3 each (£60,000/20,000).
So, each share sold generates a capital gain of £1. Matt has an exempt amount of capital gains equal to
£12,300 therefore the maximum number of shares he can before the exempt amount is used up is 12,300.
29. Sale of the painting generates a capital gain = £60,000 (£85,000 - £25,000). The gain for Emma is thus
£30,000.
Sale of the XYZ shares generates a capital loss of £8,000 (£10,000 - £18,000).
Therefore, net capital gain = £30,000 - £8,000 = £22,000
Taxable gain (after deducting exempt amount) = £22,000 – 12,300 = £9,700
30. Sale of the painting generates a capital gain = £60,000 (£85,000 - £25,000). The gain for Emma is thus
£30,000.
Taxable gain = £30,000 - £12,300 = £17,700
As Emma is a higher rate taxpayer, the rate of CGT paid = 20%
Therefore, Emma will pay CGT = £17,700* 0.2 = £3,540
31. If Matt sells his XYZ shares he will generate a capital gain = £20,000
Taxable gain = £20,000 - £12,300 = £7,700
As Matt is a basic rate taxpayer his CGT rate is 10%.
Therefore, CGT paid = £7,700* 0.1 = £770
37. Of the dividend income of £6,000 the first £2,000 falls within the dividend allowance and so is not taxed.
As the investor is a higher rate taxpayer the remaining £4,000 is taxed at 32.5%. Tax paid is therefore
£4,000 * 0.325 = £1,300
44. An anti-avoidance rate of 15% is charged on the entire purchase price where companies buy residential
properties with a value over £500,000. Therefore tax paid = £3,000,000 * 0.15 = £450,000
72. SDRT is charged at 0.5% on the value of purchased shares. In this case, £20,000 * 0.005 = £100
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