R02 Equities and company analysis: free practice questions

1. Question 1 of 5

   Interest rates rise sharply. Which sector's share prices are likely to fall more than the market average?

   Option A: UtilitiesOption B: SupermarketsOption C: Tobacco companiesOption D: Housebuilders

   Show answer

   The answer is D: Housebuilders

   Changes in rates affect sectors differently. Higher interest rates raise mortgage costs, which can deter house buyers, so housebuilders' shares may fall further than the average.

   Why the other options are wrong

   A

   Utilities' demand is relatively stable when rates rise.

   B

   Food retailers are less sensitive to mortgage costs.

   C

   Their sales aren't closely tied to borrowing costs.

2. Question 2 of 5

   When does the Panel on Takeovers and Mergers (PTM) levy apply, and how much is it?

   Option A: £1.50 on trades over £1,000Option B: £1.50 on trades of £10,000 or moreOption C: £10 on trades of £50,000 or moreOption D: 0.5% on every trade, whatever its size

   Show answer

   The answer is B: £1.50 on trades of £10,000 or more

   The PTM levy is a flat £1.50 on all trades of £10,000 or more, funding the panel that oversees takeovers and mergers of listed companies.

   Why the other options are wrong

   A

   The levy applies from £10,000.

   C

   It's a flat £1.50 on trades of £10,000 or more.

   D

   0.5% is the stamp duty and SDRT rate.

3. Question 3 of 5

   A higher rate taxpayer receives £3,500 of dividends in 2026/27 and has no other dividend income. How much tax is due on them?

   Option A: £1,200.00Option B: £1,251.25Option C: £322.50Option D: £1,072.50

   Show answer

   The answer is D: £1,072.50

   £3,500 − £500 allowance = £3,000 taxable. £3,000 × 35.75% (the 2026/27 higher rate on dividends) = £1,072.50.

   Why the other options are wrong

   A

   That uses the 40% income tax rate instead of the dividend rate.

   B

   That ignores the £500 dividend allowance.

   C

   That uses the basic rate dividend rate of 10.75%.

4. Question 4 of 5

   A company's profit after tax is £4.2m and it pays £0.2m in preference dividends. It has 20 million ordinary shares. What is its earnings per share?

   Option A: 2pOption B: 20pOption C: 21pOption D: 22p

   Show answer

   The answer is B: 20p

   EPS = profit attributable to ordinary shareholders ÷ shares in issue = (£4.2m − £0.2m) ÷ 20m = £0.20, or 20p.

   Why the other options are wrong

   A

   The answer is £4m ÷ 20m shares, which is 20p.

   C

   That ignores the preference dividends, which come out first.

   D

   That adds the preference dividends instead of deducting them.

5. Question 5 of 5

   Which of the following are limitations of investment ratios? 1. Companies may use different accounting policies 2. Ratios are often based on historical data 3. High inflation can make trends look better than they are 4. They can't be used to compare similar companies

   Option A: 1 and 2 onlyOption B: 1, 2, 3 and 4Option C: 1, 2 and 3 onlyOption D: 2, 3 and 4 only

   Show answer

   The answer is C: 1, 2 and 3 only

   Ratios help assess trends and compare similar companies, but differing or changing accounting policies, reliance on historical figures and periods of high inflation can all make them misleading.

   Why the other options are wrong

   A

   Inflation distorting trends is also a limitation.

   B

   Statement 4 is wrong: ratios are used to compare similar companies.

   D

   Comparing similar companies is one of their main uses.

R0 Exam Prep is an independent revision tool. It is not produced, endorsed by or affiliated with the Chartered Insurance Institute (CII). Questions and explanations are original. Use it alongside the official study text. About R0 Exam Prep