Do not open this examination paper until the presiding officer or an invigilator tells you to.

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1 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, 2 June 2015 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, 2015 Page 1 of 18

2 Do not write on this page examiner use only Section A Section B Section C Question Question Question Total Total Total Total marks for paper: Marker (full name): Reviewer (full name): Clerical check (full name): Examiner review: ICSA, 2015 Page 2 of 18

3 Section A Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 1 What is the name of the method used by unlisted companies to obtain a stock exchange listing without raising any additional capital? _ (1 mark) 2 Settlement for spot fx currency contracts takes place at: (Tick one box only) A T + 1 B T + 2 C T + 3 D T + 4 (1 mark) 3 When a considerable change in the price of a product makes little difference to the quantity demanded, this demand is considered to be: _ (1 mark) 4 Give two reasons why investors may decide to purchase preference shares of a company rather than ordinary shares of the same company. i ii (2 marks) ICSA, 2015 Page 3 of 18

4 5 Companies may raise finance by using commercial paper (CP). State how this finance would and would not be used by companies. (2 marks) 6 The situation which arises when the yield on government bonds is greater than the yield on equities is referred to as the yield gap. Is this true or false? Tick one box only True False (1 mark) 7 If investors are concerned about potential falls in the prices of their assets, suggest how they can protect themselves using exchange traded derivative products with a single delivery date. (2 marks) 8 Where a company has a dividend cover of 0.5 in a particular year, what does this imply from the perspective of the company? (1 mark) ICSA, 2015 Page 4 of 18

5 9 State two issues that investors may need to consider before purchasing alternative investments such as art, antiques and fine wines. i ii (2 marks) 10 Give two reasons why all bonds have a stated fixed nominal amount. i ii (2 marks) _ Total for Section A = 15 marks ICSA, 2015 Page 5 of 18

6 Section B Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 11 Explain two corporate strategies in which companies combine so they can expand their business. i ii (6 marks) 12 An investor purchased an amount of 4% Treasury Gilts 2022 (nominal 100) at At the time of purchase there were exactly 8 years until the final redemption date. Calculate the annual gross redemption yield (GRY). Use the box below for your calculations and show your workings. Gross redemption yield (GRY) = (6 marks) ICSA, 2015 Page 6 of 18

7 13 Explain what carry trade is and how investors may use it to make profit. (6 marks) 14 Explain how a capitalisation issue works and why companies might undertake this corporate action. (6 marks) ICSA, 2015 Page 7 of 18

8 15 Explain how the Retail Distribution Review (RDR) aimed to change the UK retail financial services sector. Include examples of the RDR s objectives in your answer. (6 marks) _ Total for Section B = 30 marks ICSA, 2015 Page 8 of 18

9 Section C Answer two questions only. Continue your answers on a separate sheet of paper if necessary. 16 Collective investment schemes can be open-ended or closed-ended. Explain the negative aspects of both open and closed ended investment schemes and why they may still be a positive choice for certain types of investor. (15 marks) ICSA, 2015 Page 9 of 18

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12 17 Explain the conditions which must be fulfilled for a perfect market to exist in theory and evaluate whether or not a perfect market can exist in practice. (15 marks) ICSA, 2015 Page 12 of 18

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15 18 Discuss the advantages and disadvantages for investors who use contracts for difference (CFDs). (15 marks) ICSA, 2015 Page 15 of 18

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18 _ Total for Section C = 30 marks Total for paper = 75 marks 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. END ICSA, 2015 Page 18 of 18

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