CFMAS

Module 9A Set 1 Strictly For Internal Use Only

Life Insurance & Investment-Linked Policies II

CMFAS Module 9A Practice Questions Set 1
1) Expense ratio is the ratio of operating expenses to the daily average NAV and operating
expenses include
a) Trustees fees, custodial expenses, taxes and redemption fees
b) Trustees fees, legal fees, taxes and redemption fees
c) Trustees fees, custodial expenses, taxes and legal fees
d) Trustees fees, trading expenses, taxes and legal fees
(C4/S1.2)

2) Investors of Reverse Convertible Bonds will receive __________ when the price of the
underlying stocks falls below a predetermined level of the issue price. This
predetermined level is known as ____________
a) The par value of the note, knock-out level
b) A pre-determined number of shares of the underlying stock, knock-out level
c) The par value of the note, kick-in level
d) A pre-determined number of shares of the underlying stock, kick-in level
(C1/S3.2)

3) A Superior Income Plan (SIP) has the following product features:-
Premium Amount $50,000 Single Premium
Investment Period 5 Years
Annual Payouts Higher of (i) Guaranteed payment of 1% of the SP or
(ii) a non-guaranteed payment based on the
performance of a basket of 5 stocks determined as 5% x
n/N
n is the number of trading days 250
in which all 5 stocks
consistently between 92% to
108% throughout the 5 years
period
N is the total number of trading 250
days in the policy year

The total payout the client will receive at the end of the 5 years is
a) $52,500
b) $55,200
c) $62,500
d) $65,200
(C6)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

4) The following terminologies about Structured ILPs are correct except
a) Forward pricing is based on Bid and Offer prices as determined on the last asset
valuation date
b) Turnover ratio is typically higher for an aggressive small cap growth stock fund
c) Expense ratio does not include trading expenses , initial sales charges and
redemption fees
d) Soft Dollars include research & advisory services , economic & political analyses,
portfolio analyses and data & quotation services
(C4/S1.2)

5) The current spot price of oil futures is $112. The March oil futures price is $100. How do
you describe this?
a) 12 basis over
b) 12 basis under
c) 6 basis over
d) 6 basis under
(C3/S2)

6) Which of the following creditors will get priority when it comes to receiving payment?
a) Shareholders
b) Senior bondholder
c) Subordinated tranche holder
d) Company Executive
(C1/S4)

7) Which of the following is NOT an issuer-specific risk?
a) Operational risk
b) Interest rate
c) Litigation
d) Regulatory action
(C2/S1)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

8) The issuer wants to have full flexibility in designing a structured product. Which wrapper
should be used?
a) Structured Deposits
b) Structured Notes
c) Structured Funds
d) Structured ILPs
(C1/S1.3)

9) Which of the following about swaps is FALSE?
a) It is an agreement to exchange cash flows at future dates
b) Nothing is bought or sold
c) There is a change of ownership of the financial instrument
d) It allows two companies domiciled in different countries to exchange equivalent
amount of currency
(C3/S4)

10) A structured ILP may be suitable for Mr. Khor who has a medium to long term horizon as
a) Most ILP sub-finds are diversified
b) Structured ILPs are managed by professional fund managers
c) It takes time for the ILP sub-funds investment experience to compensate for the
expenses charged
d) Theres economy of scale
(C4/S2.1, S2.2)

11) Your client is considering between structured ILP A and structured ILP B. Structured ILP A
has a fund size of 200 million and B has a fund size of 10 million. Which of the following
statement is true?
a) B has a higher liquidity risk compared to A
b) A has a higher liquidity risk compared to B
c) A & B have the same level of liquidity risk
d) Fund size does not affect the level of liquidity risk
(C4/S2.3)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

12) Joy placed S$50,000 into a structured ILP with a sum assured of S$62,500. If Joy
surrenders her policy before it matures, she will be getting 100% if NAV of her units.
Which of the following risks should she be most concerned with if she is likely to
surrender the policy before its maturity?
a) Market risk
b) Counterparty risk
c) Liquidity risk
d) Opportunity cost
(C6)

13) For Forward contracts in energy market, majority of trades use book out process
whereby
a) Contracts are cleared by the buyers and sellers in a series of trades to cancel mutual
contracts by cash settlement
b) Contracts are cleared by the buyers and sellers in a series of trades to cancel mutual
contracts by physical delivery
c) Contracts are cleared by the buyers and sellers in a series of trades to offset the
previous contracts
d) Contracts are cleared by the buyers and sellers in a series of trades to exchange for
new contracts
(C3/S2.2a)

14) Which of the following swaps allows cash flows occurring on the same dates to be
netted?
a) Equity swap
b) Commodity swap
c) Interest rate swap
d) Credit default swap
(C3/S4.2)

15) Which of the following is not found in the Policy Document?
a) Fees and charges under an ILP
b) Specifications on how units are subscribed and redeemed
c) The minimum holding amount and minimum redemption amount
d) Illustration of non-guaranteed benefits under the policy
(C4/S6)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

16) Fund switching implemented in small doses refers to

a) Portfolio rebalancing
b) Drip-feeding
c) Drip-dropping
d) Fund rebalancing
(C5/S1.1)

17) Structured Products are
a) Secured debt securities of the issuer
b) Created by combing traditional investments with financial derivatives
c) Entitled to share the issuers profits
d) Equity securities that give higher return as compared to traditional products
(C1/S1)

18) An investor placed $100,000 in Australia (AUD) investment when AUD was S$1.40. The
AUD has since appreciated against SDG and is now worth S$1.20. The AUD investment
however, has appreciated by 10% in AUD terms. What is the investors net gain or loss
measured in S$?
a) Gain of 10%
b) Gain of 6%
c) Loss of 10%
d) Loss of 6%
(C2/S4)

19) Jason decides to invest S$100,000 in the following investment: P Fund issued by ABC
Bank and distributed by XYZ Bank. This fund seeks yearly investment returns (before
fees and expenses) that correspond to 150% of the returns of the yearly performance of
the Japan Index fund. What is/are the risk(s) that John is subject to?
a) Market Risk
b) Liquidity Risk
c) Credit Risk of ABC Bank
d) All of the above
(C2/S1, S2, S3)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

20) Which of the following statements about Portfolio is False?

a) Death benefit can be included in portfolio bonds
b) Portfolio bonds offer a wide range of investment choices
c) The principal of portfolio bonds is generally guaranteed
d) Policy owners may appoint their own portfolio managers who are within the
insurers platform
(C5/S1)

21) The main difference between portfolio bonds and unit trusts is the presence of
a) Fund Manager
b) Dealing Account
c) Early Withdrawal charge
d) Set-up charges
(C5/S1.1bvii)
22) Which risk relates to the return component of a structured product?
a) Market volatility
b) Interest rate
c) Counterparty defaults
d) Credit risk of the issuer
(C1/S2.1)

23) Which of the following has the least impact on the price of the derivatives?
a) The spot price of the underlying asset
b) The number of investors for the underlying asset
c) The price volatility for the underlying asset
d) The dividend rate of the underlying asset
(C3/S3.2)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

24) A structured ILP has the following features:

Issuer = Company A
Underlying Asset = Basket of 5 stocks
Tenure = 5 years
Structure of the product = Annual payout plan
Maturity value = Initial capital amount + Guaranteed 1% of the capital
Payout = 1.5% of the initial capital every year if the price of all 5 stocks has increased by 10%
on maturity as compared to the price on the start date of the investment
Assuming the investor invests $150,000 in this structured ILP, calculate the total amount
that the investor will receive at the end of 5 years under the BEST possible market
performance scenario.
a) $150,000
b) $160,500
c) $161,250
d) $162,750
(C4)



25) The forward price of a barrel of oil is $220. The current spot price is $260. The cost of
carry is therefore equal to a:
a) Premium of $20
b) Premium of $40
c) Discount of $20
d) Discount of $40
(C3/S2.1)

26) Structured Fund is
a) Issued by a bank
b) Issued by an insurance company
c) A collective investment scheme
d) Principal protected
(C1/S1.2)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

27) Which of the following is FALSE?

a) A call seller pays the premium
b) A call buyer has the right to buy
c) Buyer determines the time to exercise the options
d) Seller has the obligation to buy or sell
(C3/S3)

28) Which of the following is not true about Structured Products?
a) They are unsecured debt securities of the issuer
b) They have equity-like structures and participate in the profits of the issuer
c) They are hybrid products
d) They are more complex products
(C1/S1)

29) Grace wants to buy structured investments. She is concerned about liquidating her
investments when she needs the money. Which of the following is her most concerned
risk?
a) Credit risk
b) Liquidity risk
c) Interest rate risk
d) Counterparty risk
(C2/S3)

30) Which of the following best describes reverse convertible bonds?
a) Investor has full upside potential
b) Use a put option
c) Tracks the performance of underlying asset
d) Investor has limited downside protection
(C1/S3.2)

31) Which of the following is a PRIMARY risk relating to the return component of a
structured product?
a) Market risk
b) Interest rate risk
c) Counterparty risk
d) Liquidity risk
(C1/S2.1)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

32) Which of the following cannot be used to mitigate the liquidity risk of a portfolio bond?
a) Invest in publicly traded products
b) Invest in shares with high trading volume
c) Ask for counterparty for margin
d) Invest in shares that are high in demand
(C2/S3)

33) The additional amount required to restore the account is called
a) Initial Margin
b) Margin Call
c) Variation Margin
d) Maintenance Margin
(C3/S2.6)

34) Which of the following describes a non-standardized contract?
a) Forward contract traded over the counter
b) Commodity future contracts
c) Financial future contracts
d) All of the above
(C3/S2)
35) The strike price of a put option is $10. The market price is $15. The intrinsic value of the
put option is
a) In-the-money
b) At-the-money
c) Out-of-the-money
d) Under-the-money
(C3/S3)

36) Which of the following best describes the price where the units of a portfolio bond are
subscribed to?
a) Forward pricing
b) Offer price
c) Bid price
d) Historic Pricing
(C4/S1.2)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

37) Calvin invested in a USD structured product issued by Bank A with a credit rating of AA.
The fund size is US$8 million. Calvin is concerned about getting his money when he
needs it. Which of the following risk is his top concern?
a) Foreign exchange risk
b) Interest rate risk
c) Liquidity risk
d) Credit risk
(C4/S2.3)

38) The coefficient of correlation of 2 securities that are not correlated is
a) +0.5
b) 0
c) -0.5
d) 1
(C2/S6.2)

39) Which of the statements least describes an issuer-specific risk?
a) Internal operation of Company A
b) Regulatory impact on the industry which Company B is in
c) Downgrade in credit rating of Company C
d) Exchange rate of the securities in which Company D is traded in
(C2/S1)

40) Which is true about a Structured ILPs death benefit?
a) Death benefit is the same amount as the single premium invested
b) Death benefit is more than the single premium invested
c) Death benefit is lower than the single premium invested
d) Death benefit is capped at 110% of the single premium invested
(C4/S1.1)

41) What information is found in the Statement to Policy Owners?
a) Net cash surrender value at the end of the previous statement period
b) Number and value of units held at the end of the previous statement period
c) Projection on policy values under reasonable investment expectation
d) Current death benefit at the start of current statement period
(C4/S6.3)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

42) Which of the following is least descriptive of callable structured products?

a) Exposes investors to interest rate and reinvestment risks
b) Cheaper than straight , non-callable securities and pay higher coupons
c) The price of callable bond is more than the price of a call option
d) Issuer callable feature may be redeemed before its maturity date, at the issuers
discretion
(C1/S4.2)

43) Kacy invested $20,000 in a structured ILP with a sum assured of $25,000. In event of
early redemption, what will he NOT receive?
a) Capital invested
b) Sum assured
c) Accrued Interest
d) All of the above
(C4/S1.1)

44) Which of the following about reverse convertible bonds is true?
a) Reverse convertible bond is a structured product
b) Reverse convertible bond protects capital
c) Reverse convertible bond has protection on downside as value of the stock falls
d) Reverse convertible bond and conventional bond can be used interchangeably
(C1/S3.2a)

45) Which of the following statements regarding speculators is true?
a) Buy high sell low
b) Buy low sell high
c) Buy low and keep the investment for a long period
d) Buy and sell to profit from falling and rising prices
(C1/S1.2)

46) Which of the following Acts provide policy owners a priority claim on insurance fund
assets over general creditors in case of bankruptcy?
a) Company Act
b) Insurance Act
c) Code on CIS
d) All of the above
(C1/S4.4e)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

47) When one is bullish about the market, he can leverage by using
a) Long stock
b) Short stock
c) Long call
d) Short call
(C3/S3.4)

48) Rachel has a strong feeling that a particular stock is about to move lower yet she is
fearful of selling the stock short because of unlimited losses. Which strategy can she
use?
a) Covered calls
b) Long puts
c) Protective puts
d) Naked calls
(CS/S3.4, S3.5)
49) Investors of structured products may face counterparty risks which means that
a) The issuers credit rating may be downgraded
b) The issuer may face difficulty in meeting its cash flow obligations
c) Interest rate fluctuations may affect the quality of the structured products
d) The counterparty may fail to meet its contractual obligations to the issuers
(C2/S2)

50) Which of the following option strategies would be most appropriate if an investor
wishes to use leverage and is bullish on a certain stock?
a) Long a call
b) Sell a naked put
c) Write a covered call
d) Buy a protective put
(C3/S3.4)

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

Answers:

1 C 26 C
2 D 27 A
3 C 28 B
4 A 29 B
5 A 30 B
6 B 31 A
7 B 32 C
8 B 33 C
9 C 34 A
10 C 35 C
11 A 36 B
12 A 37 C
13 A 38 B
14 C 39 D
15 D 40 B
16 B 41 B
17 B 42 C
18 D 43 B
19 D 44 A
20 C 45 D
21 B 46 B
22 A 47 C
23 B 48 B
24 D 49 D
25 D 50 A

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CFMAS Module 9A Set 1 Strictly For Internal Use Only

Workings:
Question 3:
(250/250) * 0.05 * 50,000 * 5 = $12,500
$12,500 + $50,000 = $62,500
Answer is C

Question 18:
Convert to Aud : 100,000 / 1.4 = 71,428.57
Appreciated 10% = 1.1 * 71,428.57 = 78,571.43
Convert to Sgd : 78,571.43 * 1.2 = 94,285.71
Loss in % = (100,000 94,285.71) / 100,000 = 0.057
Multiply by 100 to get % & round off = 6%
Answer is D loss of 6%

Question 24
1.5% * 150,000 * 5 = 11,250
1% * 150,000 = 1,500
Add principal = 150,000
Total = 162,750
Answer is D

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