Chapter 14 Multiple choice questions

. Which of the following best describes "investment"?

The process by which assets are applied with the intention of producing income and/or capital growth over the medium to long term.

The process by which assets are applied with the intention of producing income growth over the long term.

The process by which income is applied to acquire assets over the medium to long term.

The process by which money is applied in the hope of producing income or capital returns.

. Which of the following factors threatened to obstruct the implementation of modern portfolio theory in English law?

The 'anti-netting' rule.

An unrestricted range of investment options.

The rule that trust investments must yield returns.

The rule against speculative investment.

. Which of the following is not within the standard investment criteria under section 4(1) of the 2000 Act?

Investments should be diversified.

Particular investments should be suitable investments of the chosen investment type.

The trustee must always seek expert advice.

Investments should be periodically reviewed.

. What did Hoffmann J say in Nestle v National Westminster Bank Plc (1996) 10(4) TLI 11, Chancery Division?

"The preservation of the real value is impossible due to inflation".

"The preservation of the monetary value of the capital requires no skill or luck".

"A rule that real capital values must be maintained would be fair to the beneficiaries but hard on the trustees".

"The trustees must hold the scales equally between tenant for life and remainderman".

. What is the current general law on investment in land?

All investment in land is now permitted.

A trustee may acquire freehold or leasehold land in the United Kingdom.

It is now compulsory to invest some of the fund in land, because they aren't making it anymore.

It is only possible to invest in loans on land, and only then when the loan covers at least two-thirds of the full value of the land.

. Which of the following cannot currently be a valid investment under the general law?

Purchase of gold bullion.

Purchase of fine art.

Purchase of mortgage.

A personal loan of money.

. In the case of Nestle v National Westminster Bank Plc [1993] 1 WLR 1260, the trustees were cautious to the point of 'incompetence or idleness' (per Staughton LJ). When the claimant (the remainder beneficiary) became absolutely entitled to the trust fund in 1986 the fund was valued at £270,000. If the original fund had simply maintained its original purchasing power, how much would it have been worth 1986?

£250,000

£1 million

£500,000

£2 million

. "The bias of the law of trustee investment is always towards_____"
Which is the missing word?

Speculation

Prudence

Shares

Growth

. Which of the following factors will NOT justify placing ethical considerations ahead of purely financial considerations?

Unanimous ethical views of the beneficiaries of a private trust.

The absence from the trust deed of any prohibition on ethical investment.

Cases where the objects of a charity are such that investments of a particular type would conflict with the aims of the charity.

Cases where trustees' holdings of particular investments might hamper a charity's work by making potential recipients of aid unwilling to be helped.

. Crates of champagne are 'wasting assets' because their value decreases the more the champagne is consumed. Where a residuary estate held on trust for the benefit of life and remainder beneficiaries comprises crates of champagne, is the trustee obliged to sell the champagne and to re-invest in property which will more fairly meet the beneficiaries' respective interests in income and capital?

Always.

It depends on the date of the trust.

Never.

It depends on the date of the champagne.

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