Practice Free ICWIM Exam Online Questions
Question #11
Your client estimates that they will require £40,000 of income annually to live off when they retire. Personal plus state pension will provide £35,000. They wish to retire in 20 years’ time. It is estimated that they can earn 3% per annum and inflation has been forecast at 2% over the next 20 years. Interest rates are currently 1.5%.
Allowing for inflation, what lump sum would they need to accrue to supplement their pension?
- A . £165,105
- B . £247,658
- C . £331,631
- D . £495,316
Correct Answer: C
C
Explanation:
Determine the shortfall in income:
Desired income: £40,000
Pension provided: £35,000
Annual shortfall: £40,000 – £35,000 = £5,000
Adjust for inflation over 20 years:Future value = Present Value × (1 + Inflation Rate)^n£5,000 × (1 + 0.02)^20 = £7,430 (inflation-adjusted shortfall)
Calculate the lump sum required to generate this shortfall:Use the real rate of return formula: (1 +
nominal return) ÷ (1 + inflation rate) – 1Real rate of return = (1 + 0.03) ÷ (1 + 0.02) – 1 = 0.98% per year Use the present value of annuity formula:PV = PMT × [(1 – (1 + r)^-n) ÷ r]PV = £7,430 × [(1 – (1 + 0.0098)^-20) ÷ 0.0098]PV = £7,430 × 44.64 = £331,631
[Reference: ICWIM, Topic: Retirement Planning and Inflation Adjustments in Financial Projections., , ]
C
Explanation:
Determine the shortfall in income:
Desired income: £40,000
Pension provided: £35,000
Annual shortfall: £40,000 – £35,000 = £5,000
Adjust for inflation over 20 years:Future value = Present Value × (1 + Inflation Rate)^n£5,000 × (1 + 0.02)^20 = £7,430 (inflation-adjusted shortfall)
Calculate the lump sum required to generate this shortfall:Use the real rate of return formula: (1 +
nominal return) ÷ (1 + inflation rate) – 1Real rate of return = (1 + 0.03) ÷ (1 + 0.02) – 1 = 0.98% per year Use the present value of annuity formula:PV = PMT × [(1 – (1 + r)^-n) ÷ r]PV = £7,430 × [(1 – (1 + 0.0098)^-20) ÷ 0.0098]PV = £7,430 × 44.64 = £331,631
[Reference: ICWIM, Topic: Retirement Planning and Inflation Adjustments in Financial Projections., , ]
Question #12
What is the final stage of the money laundering process?
- A . Calculator
- B . Arranging
- C . Integration
- D . Layering
Correct Answer: C
C
Explanation:
Money laundering typically involves three stages: Placement, Layering, and Integration. Let’s break down each stage for clarity and to verify why the correct answer is C. Integration: Placement
This is the initial stage where illicit funds enter the financial system.
For example, depositing large amounts of cash into a bank, buying high-value assets, or smuggling cash
to another country.
Layering
This stage involves separating the illicit funds from their illegal origin by conducting complex layers of financial transactions.
Examples include wire transfers, currency exchanges, and purchasing securities to obscure the money trail.
Integration (Final Stage)
The last step involves reintroducing the "cleaned" money into the legitimate economy.
At this stage, the laundered funds appear to be derived from legitimate sources.
Examples include investing in real estate, luxury assets, or legitimate businesses.
This stage is critical because it completes the money laundering cycle and makes the funds usable without arousing suspicion.
Why the Correct Answer is "C. Integration"
Integration represents the culmination of money laundering efforts.
It allows the perpetrator to enjoy the proceeds of crime by disguising them as legitimate income or assets.
This stage relies heavily on creating the illusion of legality.
ACAMS (Association of Certified Anti-Money Laundering Specialists): Discusses the standard three-stage process of money laundering.
International Certificate in Wealth & Investment Management (ICWIM) Study Guide: Outlines the process in Chapter 3 (AML & CFT).
Financial Action Task Force (FATF)Guidelines: Recognizes the integration phase as the endpoint of the money laundering cycle.
C
Explanation:
Money laundering typically involves three stages: Placement, Layering, and Integration. Let’s break down each stage for clarity and to verify why the correct answer is C. Integration: Placement
This is the initial stage where illicit funds enter the financial system.
For example, depositing large amounts of cash into a bank, buying high-value assets, or smuggling cash
to another country.
Layering
This stage involves separating the illicit funds from their illegal origin by conducting complex layers of financial transactions.
Examples include wire transfers, currency exchanges, and purchasing securities to obscure the money trail.
Integration (Final Stage)
The last step involves reintroducing the "cleaned" money into the legitimate economy.
At this stage, the laundered funds appear to be derived from legitimate sources.
Examples include investing in real estate, luxury assets, or legitimate businesses.
This stage is critical because it completes the money laundering cycle and makes the funds usable without arousing suspicion.
Why the Correct Answer is "C. Integration"
Integration represents the culmination of money laundering efforts.
It allows the perpetrator to enjoy the proceeds of crime by disguising them as legitimate income or assets.
This stage relies heavily on creating the illusion of legality.
ACAMS (Association of Certified Anti-Money Laundering Specialists): Discusses the standard three-stage process of money laundering.
International Certificate in Wealth & Investment Management (ICWIM) Study Guide: Outlines the process in Chapter 3 (AML & CFT).
Financial Action Task Force (FATF)Guidelines: Recognizes the integration phase as the endpoint of the money laundering cycle.
Question #13
A non-profit, whole-of-life assurance policy, will pay:
- A . A return, linked to the insurance company’s units
- B . A fixed sum provided death occurs within a predetermined time
- C . An amount linked to the prevailing rate of inflation
- D . A fixed sum, chosen at the outset
Correct Answer: D
D
Explanation:
What is a Non-Profit, Whole-of-Life Assurance Policy?
It providesguaranteed coverage for the entire lifeof the insured.
The policy does not participate in the insurer’s profits (hence "non-profit") and pays apre-determined
sumupon death.
Why D is Correct
The payout is fixed at the policy’s inception, offering certainty to beneficiaries.
Other Options Analyzed
D
Explanation:
What is a Non-Profit, Whole-of-Life Assurance Policy?
It providesguaranteed coverage for the entire lifeof the insured.
The policy does not participate in the insurer’s profits (hence "non-profit") and pays apre-determined
sumupon death.
Why D is Correct
The payout is fixed at the policy’s inception, offering certainty to beneficiaries.
Other Options Analyzed
Question #14
Which type of corporate action can only occur if a resolution is passed to forgo pre-emption rights?
- A . Placing
- B . Share buyback
- C . Stock split
- D . Warrant exercise
Correct Answer: A
A
Explanation:
A placing is a method of issuing new shares to specific investors rather than offering them to existing shareholders. For a placing to proceed, existing shareholders’ pre-emption rights (the right to buy new shares before others) must be waived, which requires a resolution to be passed.
[Reference: ICWIM, Topic: Corporate Actions and Share Issuance., Companies Act 2006 (UK), Sections 561-577 regarding pre-emption rights., , ]
A
Explanation:
A placing is a method of issuing new shares to specific investors rather than offering them to existing shareholders. For a placing to proceed, existing shareholders’ pre-emption rights (the right to buy new shares before others) must be waived, which requires a resolution to be passed.
[Reference: ICWIM, Topic: Corporate Actions and Share Issuance., Companies Act 2006 (UK), Sections 561-577 regarding pre-emption rights., , ]
Question #15
A rise in living standards will tend to:
- A . Reduce the demand for commodities
- B . Have no effect on commodities
- C . Increase government participation in the commodities markets
- D . Create an increased demand for commodities
Correct Answer: D
D
Explanation:
Understanding the Question Context: The question examines the relationship between rising living standards and commodity demand. Commodities refer to basic goods used in commerce that are interchangeable with others of the same type, such as agricultural products (wheat, coffee), energy products (oil, gas), and metals (gold, copper).
Impact of Rising Living Standards:
Economic Theory: As living standards improve, disposable incomes generally increase, allowing individuals to purchase more goods and services.
Consumption Patterns: Higher living standards drive demand for:
Energy commodities: Increased vehicle ownership and industrial activity raise the demand for oil, gas, and electricity.
Agricultural commodities: Rising incomes lead to greater consumption of diverse and higher-quality food, including meat and grains (used for feed).
Industrial and precious metals: Construction, technology, and luxury markets grow with increased disposable income, driving demand for metals like steel, copper, and gold.
Explanation of the Correct Option (D):
Increased Demand: A direct relationship exists between rising living standards and commodity demand, as seen in both developed and developing economies.
Historical Context: Economic growth in emerging markets (e.g., China, India) has shown a clear correlation between rising GDP per capita and increased commodity consumption.
Rejection of Incorrect Options:
A (Reduce the demand for commodities): This contradicts economic principles; higher living standards typically boost demand for goods and services, including commodities.
B (Have no effect on commodities): Evidence shows a significant impact on commodities, making this incorrect.
C (Increase government participation in the commodities markets): While governments may engage in commodity markets for regulatory or strategic purposes, this is not a direct consequence of rising living standards.
Reference: from the International Certificate in Wealth & Investment Management:
Module 1: Macroeconomic Environment: Emphasizes the correlation between economic growth and demand for natural resources and commodities.
Module 3: Investment Assets and Markets: Discusses the role of commodities as essential assets whose demand rises with economic development and improved living standards.
Module 6: Trends in Emerging Markets: Demonstrates the increase in commodity demand with economic progression in developing economies.
D
Explanation:
Understanding the Question Context: The question examines the relationship between rising living standards and commodity demand. Commodities refer to basic goods used in commerce that are interchangeable with others of the same type, such as agricultural products (wheat, coffee), energy products (oil, gas), and metals (gold, copper).
Impact of Rising Living Standards:
Economic Theory: As living standards improve, disposable incomes generally increase, allowing individuals to purchase more goods and services.
Consumption Patterns: Higher living standards drive demand for:
Energy commodities: Increased vehicle ownership and industrial activity raise the demand for oil, gas, and electricity.
Agricultural commodities: Rising incomes lead to greater consumption of diverse and higher-quality food, including meat and grains (used for feed).
Industrial and precious metals: Construction, technology, and luxury markets grow with increased disposable income, driving demand for metals like steel, copper, and gold.
Explanation of the Correct Option (D):
Increased Demand: A direct relationship exists between rising living standards and commodity demand, as seen in both developed and developing economies.
Historical Context: Economic growth in emerging markets (e.g., China, India) has shown a clear correlation between rising GDP per capita and increased commodity consumption.
Rejection of Incorrect Options:
A (Reduce the demand for commodities): This contradicts economic principles; higher living standards typically boost demand for goods and services, including commodities.
B (Have no effect on commodities): Evidence shows a significant impact on commodities, making this incorrect.
C (Increase government participation in the commodities markets): While governments may engage in commodity markets for regulatory or strategic purposes, this is not a direct consequence of rising living standards.
Reference: from the International Certificate in Wealth & Investment Management:
Module 1: Macroeconomic Environment: Emphasizes the correlation between economic growth and demand for natural resources and commodities.
Module 3: Investment Assets and Markets: Discusses the role of commodities as essential assets whose demand rises with economic development and improved living standards.
Module 6: Trends in Emerging Markets: Demonstrates the increase in commodity demand with economic progression in developing economies.
Question #16
The Arbitrage Pricing Theory (APT) seeks to determine what factors influence security price movements using:
- A . Mean variance analysis
- B . Beta testing
- C . Technical analysis
- D . Regression analysis
Correct Answer: D
D
Explanation:
Understanding APT:
The Arbitrage Pricing Theory (APT) uses statistical models to identify the factors influencing security prices.
Regression analysis is the primary tool to determine the relationship between security returns and multiple factors, such as inflation, GDP growth, or interest rates. Elimination of Other Options:
A: Mean variance analysis pertains to portfolio optimization, not factor analysis.
B: Beta testing is related to CAPM, not APT.
C: Technical analysis examines price patterns, not underlying factors.
Reference: ICWIM Module 3: Coverage of APT and the role of regression models in security pricing.
D
Explanation:
Understanding APT:
The Arbitrage Pricing Theory (APT) uses statistical models to identify the factors influencing security prices.
Regression analysis is the primary tool to determine the relationship between security returns and multiple factors, such as inflation, GDP growth, or interest rates. Elimination of Other Options:
A: Mean variance analysis pertains to portfolio optimization, not factor analysis.
B: Beta testing is related to CAPM, not APT.
C: Technical analysis examines price patterns, not underlying factors.
Reference: ICWIM Module 3: Coverage of APT and the role of regression models in security pricing.
Question #17
An investor would regard a company’s interest cover ratio as significant as it provides:
- A . An indication of the extent to which the company can service its debts
- B . An indication of what interest rate the company is paying
- C . A breakdown of how much debt a company has in relation to equity
- D . A summary of how much liquid cash an organisation has for funding dividend payments
Correct Answer: A
A
Explanation:
Interest Cover Ratio Defined
This ratio measures a company’s ability to meet its interest obligations with its operating earnings. Formula: Interest Cover Ratio=Earnings Before Interest and Taxes (EBIT)Interest Expense ext{Interest Cover Ratio} = rac{ ext{Earnings Before Interest and Taxes (EBIT)}}{ ext{Interest Expense}}Interest Cover Ratio=Interest Expense Earnings Before Interest and Taxes (EBIT)? Why the Answer is A
A high interest cover ratio indicates strong debt-servicing capacity, which is crucial for investors assessing financial stability.
Why Other Options are Incorrect
B. Interest rate: The ratio does not indicate the interest rate being paid.
C. Debt-to-equity: Refers to leverage, not interest coverage.
D. Liquid cash for dividends: Unrelated to interest coverage.
ICWIM Study Guide, Chapter on Financial Ratios: Covers interest cover as a debt-servicing measure.
Corporate Finance Principles: Discusses its importance for creditworthiness.
A
Explanation:
Interest Cover Ratio Defined
This ratio measures a company’s ability to meet its interest obligations with its operating earnings. Formula: Interest Cover Ratio=Earnings Before Interest and Taxes (EBIT)Interest Expense ext{Interest Cover Ratio} = rac{ ext{Earnings Before Interest and Taxes (EBIT)}}{ ext{Interest Expense}}Interest Cover Ratio=Interest Expense Earnings Before Interest and Taxes (EBIT)? Why the Answer is A
A high interest cover ratio indicates strong debt-servicing capacity, which is crucial for investors assessing financial stability.
Why Other Options are Incorrect
B. Interest rate: The ratio does not indicate the interest rate being paid.
C. Debt-to-equity: Refers to leverage, not interest coverage.
D. Liquid cash for dividends: Unrelated to interest coverage.
ICWIM Study Guide, Chapter on Financial Ratios: Covers interest cover as a debt-servicing measure.
Corporate Finance Principles: Discusses its importance for creditworthiness.
Question #18
An execution-only sale usually means a sale where there is an absence of:
- A . Charges
- B . Advice
- C . Product
- D . Guarantee
Correct Answer: B
B
Explanation:
Understanding Execution-Only Sales:
Execution-only sales occur when the client makes a financial transaction without receiving any advice or
recommendations from the intermediary.
The client assumes full responsibility for the decision.
Elimination of Other Options:
A: Charges are typically present in execution-only sales.
C: The product is being sold; the sale cannot occur without it.
D: Guarantees are unrelated to the advisory process.
Reference: ICWIM Module 4: Focus on financial advice models, including execution-only services.
B
Explanation:
Understanding Execution-Only Sales:
Execution-only sales occur when the client makes a financial transaction without receiving any advice or
recommendations from the intermediary.
The client assumes full responsibility for the decision.
Elimination of Other Options:
A: Charges are typically present in execution-only sales.
C: The product is being sold; the sale cannot occur without it.
D: Guarantees are unrelated to the advisory process.
Reference: ICWIM Module 4: Focus on financial advice models, including execution-only services.
Question #19
Last year’s monthly returns for Portfolio A were 7%, 5%, -3%, 5%, 9%, 0%, 3%, 6%, -7%, -8%, 5%, 1%.
What was the portfolio’s modal rate of return to the nearest whole percentage point?
- A . 0
- B . 1
- C . 2
- D . 5
Correct Answer: D
D
Explanation:
Understanding Modal Rate of Return:
The mode is the most frequently occurring value in a dataset.
Portfolio A’s monthly returns:7%, 5%, -3%, 5%, 9%, 0%, 3%, 6%, -7%, -8%, 5%, 1%.
5%appearsthree times, more than any other value.
Elimination of Other Options:
No other return appears more than once.
Reference: ICWIM Module 3: Statistical measures in portfolio performance.
D
Explanation:
Understanding Modal Rate of Return:
The mode is the most frequently occurring value in a dataset.
Portfolio A’s monthly returns:7%, 5%, -3%, 5%, 9%, 0%, 3%, 6%, -7%, -8%, 5%, 1%.
5%appearsthree times, more than any other value.
Elimination of Other Options:
No other return appears more than once.
Reference: ICWIM Module 3: Statistical measures in portfolio performance.
Question #20
A company recently increased its earnings per share figure by 10%. This means that the company’s:
- A . Share base has widened
- B . Ability to pay dividends has improved
- C . Market share has risen
- D . P/E ratio has increased
Correct Answer: B
B
Explanation:
An increase in earnings per share (EPS) indicates improved profitability on a per-share basis. This enhances the company’s ability to distribute dividends to shareholders, assuming a consistent payout ratio.
Widened share base (A): This would typically dilute EPS, not increase it.
Market share (C): Market share is unrelated to EPS; it is about the company’s competitive position.
P/E ratio (D): While EPS affects valuation, a rise in EPS does not guarantee a P/E increase.
Reference: International Certificate in Wealth & Investment Management: Financial ratios and their implications.
EPS as a metric of profitability and dividend-paying capacity.
B
Explanation:
An increase in earnings per share (EPS) indicates improved profitability on a per-share basis. This enhances the company’s ability to distribute dividends to shareholders, assuming a consistent payout ratio.
Widened share base (A): This would typically dilute EPS, not increase it.
Market share (C): Market share is unrelated to EPS; it is about the company’s competitive position.
P/E ratio (D): While EPS affects valuation, a rise in EPS does not guarantee a P/E increase.
Reference: International Certificate in Wealth & Investment Management: Financial ratios and their implications.
EPS as a metric of profitability and dividend-paying capacity.