CISI IRT — CISI Investment, Risk and Taxation Cheat Sheet

Last revised: September 28, 2026

Cheat sheet: exam-prep reference for CISI Investment, Risk and Taxation: investment products, risk measures, formulas, and UK tax logic.

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Scope and study context

This page supports candidates preparing for the Chartered Institute for Securities & Investment CISI Investment, Risk and Taxation exam, official code CISI IRT. It is independent review support, not a Chartered Institute for Securities & Investment publication.

Product selection: cash, bonds, equities, funds, derivatives, structured products, pensions, wrappers.
Risk identification: market, credit, liquidity, inflation, currency, concentration, counterparty, tax.
Calculation logic: return, yield, volatility, beta, diversification, after-tax return.
UK taxation treatment: income, gains, wrappers, pensions, inheritance, allowances and reliefs.
Exam traps: nominal vs real, income vs capital, pre-tax vs after-tax, risk tolerance vs capacity for loss.

For tax rates, allowances, thresholds and contribution limits, use the current CISI syllabus materials or tax table supplied for your sitting.

Recognise the main investment products and their risk/return characteristics.
Compare asset classes, collective investments, wrappers, and derivative uses.
Apply core risk concepts such as volatility, diversification, correlation, beta, duration, liquidity risk, and counterparty risk.
Work through investment taxation questions methodically.
Avoid common traps in scenario-based questions.

This page is independent review support. It is not affiliated with, endorsed by, or produced by the Chartered Institute for Securities & Investment.

A good review sequence is:

Read the topic map to identify weak areas.
Attempt topic drills immediately after each section.
Review detailed explanations, especially for questions you answered correctly by guessing.
Return to this page and update your own short notes on traps and decision rules.
Finish with mixed mock exams to practise switching between investment, risk, and tax reasoning.

The exam rewards recognition plus application. Many questions are not asking for long calculations; they test whether you know which concept, risk, tax treatment, or investment feature is relevant.

Exam Decision Lenses

Lens	Ask first	High-yield exam focus
Investment objective	Income, growth, capital preservation, speculation, tax efficiency?	Product suitability depends on objective, term, liquidity need and risk capacity.
Return	Is return income, capital growth or total return?	Total return includes both income and price movement after costs and tax.
Risk	Which risk is being tested?	Do not treat “higher expected return” as suitable unless risk and capacity match.
Tax	Is it income, gain, wrapper benefit, pension treatment or estate planning?	The same investment can rank differently before and after tax.
Time horizon	Short, medium or long term?	Volatile assets are harder to justify for short-term known liabilities.
Liquidity	Is access needed?	Property, structured products, pensions and some alternatives may be unsuitable where liquidity is essential.
Diversification	Is risk specific or systematic?	Diversification reduces unsystematic risk, not market-wide risk.

Core Formula Sheet

Return, Real Return and Compounding

\[ \text{Holding period return} = \frac{P_1 - P_0 + I - C}{P_0} \]

Where \(P_0\) is initial price, \(P_1\) is final price, \(I\) is income received and \(C\) is costs.

\[ 1 + r_{\text{real}} = \frac{1 + r_{\text{nominal}}}{1+\pi} \]

Where \(\pi\) is inflation.

\[ \text{Geometric mean return} = \left(\prod_{t=1}^{n}(1+r_t)\right)^{1/n}-1 \]

Formula area	Use	Plain formula	Trap
Holding period return	Single-period total return	(ending value - starting value + income - costs) / starting value	Do not ignore income or dealing costs.
Simple annualisation	Approximation for short periods	period return × periods per year	Not reliable for volatile multi-period returns.
Geometric return	Compounded multi-period return	product of (1 + returns), then nth root minus 1	Usually lower than arithmetic average when returns vary.
Real return	Inflation-adjusted return	((1 + nominal return) / (1 + inflation)) - 1	Nominal return can be positive while real return is negative.
After-tax return	Net investor outcome	after-tax income and gains less costs, divided by initial value	Tax can reverse product ranking.
Money-weighted return	Investor-specific return	IRR including cash-flow timing	Affected by when client invested or withdrew money.
Time-weighted return	Manager performance	chain-linked sub-period returns	Removes effect of external cash flows.

Risk and Portfolio Formulas

\[ E(R)=\sum p_iR_i \]\[ \sigma^2=\sum p_i(R_i-E(R))^2 \]\[ \sigma_p^2 = w_A^2\sigma_A^2 + w_B^2\sigma_B^2 + 2w_Aw_B\rho_{AB}\sigma_A\sigma_B \]\[ E(R_i)=R_f+\beta_i(E(R_m)-R_f) \]\[ \alpha_i=R_i-\left[R_f+\beta_i(R_m-R_f)\right] \]

Measure	Meaning	Plain formula	Exam use
Variance	Dispersion of returns	probability-weighted squared deviations	Units are squared, so less intuitive than standard deviation.
Standard deviation	Volatility around expected return	square root of variance	Common measure of total risk.
Correlation	Co-movement between assets	covariance divided by product of standard deviations	Ranges from -1 to +1. Lower correlation improves diversification.
Beta	Sensitivity to market movements	covariance with market / market variance	Beta above 1 means more market-sensitive than market portfolio.
CAPM expected return	Required return for systematic risk	risk-free rate + beta × market risk premium	Uses systematic risk, not total risk.
Alpha	Return above/below CAPM expectation	actual return - CAPM expected return	Positive alpha suggests outperformance after beta adjustment.
Sharpe ratio	Excess return per unit of total risk	return minus risk-free rate, divided by standard deviation	Useful for diversified portfolios.
Information ratio	Active return per unit of active risk	active return / tracking error	Useful for active fund evaluation.
Tracking error	Volatility of active returns	standard deviation of fund return minus benchmark return	Low tracking error can still underperform benchmark.
Value at Risk	Expected maximum loss at confidence level and horizon	loss estimate under model assumptions	Not a worst-case loss; tail losses can exceed VaR.

Asset Class Selection Matrix

Asset class	Typical return source	Key risks	When it may fit	Common traps
Cash deposits	Interest	Inflation risk, bank/counterparty risk, reinvestment risk	Emergency funds, short-term liabilities, capital stability	Cash is not risk-free in real terms if inflation exceeds interest.
Money market instruments	Discount or interest	Credit, liquidity, interest-rate risk	Short-term liquidity management	Short maturity reduces but does not eliminate risk.
Government bonds	Coupons and redemption value	Interest-rate, inflation, reinvestment, sovereign risk	Income, liability matching, diversification	“Government” does not mean price cannot fall.
Index-linked bonds	Inflation-linked coupons/principal	Real yield risk, duration risk, inflation-index lag	Inflation protection, real liability matching	Long duration can still create capital volatility.
Corporate bonds	Coupons, spread tightening	Credit/default, spread, liquidity, interest-rate risk	Income with higher yield than government bonds	Higher yield often reflects higher credit risk.
High-yield bonds	High coupons	Default, liquidity, equity-like stress behaviour	Higher income for risk-tolerant investors	Can fall sharply in downturns; not a cash substitute.
Equities	Dividends and capital growth	Market, business, liquidity, currency, dividend risk	Long-term growth and inflation participation	Dividends are discretionary; capital is not protected.
Property	Rental income and capital growth	Liquidity, valuation, tenant, leverage, concentration	Income and diversification over longer horizons	Direct property can be slow and costly to sell.
Commodities	Price appreciation	Volatility, storage/roll yield, currency, supply shocks	Diversification or inflation sensitivity	No natural income unless accessed through specific structures.
Hedge funds/alternatives	Strategy-dependent	Leverage, liquidity, complexity, manager risk	Diversification for sophisticated risk budgets	Low correlation is not guaranteed in market stress.
Structured products	Formula-based payoff	Counterparty, liquidity, market, complexity, autocall risk	Defined payoff profile where risks are understood	“Capital protected” depends on terms and issuer strength.

Notes and examples

Cash and money market investments

Feature	Review point
Main role	Liquidity, capital stability, emergency reserves
Key risks	Inflation risk, reinvestment risk, provider risk, opportunity cost
Return profile	Usually low nominal return compared with risk assets
Exam angle	Cash may be appropriate for short-term needs even if expected real return is poor

Cash is not risk-free in real terms. If inflation exceeds the interest earned, purchasing power falls.

Fixed income securities

Fixed income securities generally pay contractual income and return principal at maturity, subject to issuer creditworthiness and instrument terms.

Concept	Meaning	Exam relevance
Coupon	Stated interest payment	Not the same as yield
Nominal/par value	Amount used to calculate coupon and redemption	Needed for income calculations
Market price	Price at which bond trades	Moves with rates, credit risk, time to maturity
Running yield	Annual coupon divided by current price	Ignores capital gain/loss to redemption
Redemption yield	Total return if held to redemption, assuming payments as expected	Better measure for bonds bought above/below par
Duration	Sensitivity to interest rate changes	Higher duration means greater price sensitivity
Credit rating	Assessment of default risk	Lower credit quality usually demands higher yield
Seniority/security	Claim priority on issuer assets	Affects recovery risk

Bond price and yield

The key relationship:

If market yields rise, existing bond prices generally fall.
If market yields fall, existing bond prices generally rise.
Longer-dated and lower-coupon bonds are usually more interest-rate sensitive.

Approximate price sensitivity:

\[ \text{Approximate price change} \approx -\text{modified duration} \times \text{yield change} \]

Example interpretation: a bond with higher modified duration is more exposed to interest rate changes.

Fixed income traps

Trap	Correct approach
Confusing coupon with yield	Coupon is based on nominal value; yield depends on market price
Assuming bonds are always low risk	Credit, inflation, duration, liquidity, and currency risks can be material
Ignoring redemption terms	Callable, convertible, floating-rate, or subordinated features change risk
Assuming high yield means better value	High yield may reflect high credit/default risk
Ignoring reinvestment risk	Income may need to be reinvested at lower rates

Equities

Equities represent ownership. Returns come from dividends and capital appreciation, but neither is guaranteed.

Equity concept	Review point
Ordinary shares	Voting rights, residual claim, variable dividends
Preference shares	Often fixed dividend priority, but limited growth participation
Dividends	Paid from profits at company discretion
Capital growth	Driven by earnings expectations, valuation, sentiment, and market conditions
Rights issue	Existing shareholders offered new shares, often to raise capital
Dilution	Ownership percentage can fall if rights are not taken up
Market capitalisation	Share price multiplied by shares in issue

Equity valuation ratios

Ratio	Plain meaning	Common exam use
Dividend yield	Dividend per share / share price	Income comparison
Earnings per share	Profit attributable to ordinary shareholders / shares	Profitability per share
Price/earnings ratio	Share price / EPS	Valuation relative to earnings
Dividend cover	Earnings per share / dividend per share	Sustainability of dividend
Net asset value	Assets less liabilities	Useful for funds and asset-backed companies

Important: a high dividend yield is not automatically attractive. It may indicate a falling share price, market concern, or an unsustainable dividend.

Property

Feature	Direct property	Property funds or listed property securities
Access	Requires large capital	Easier access
Liquidity	Often low	Usually higher, but not guaranteed
Valuation	Infrequent and appraisal-based	Market-priced if listed
Income	Rental income	Fund distributions/dividends
Key risks	Void periods, maintenance, concentration, transaction costs	Market risk, liquidity risk, fund structure risk

Property can provide income and diversification, but liquidity risk is a major exam point.

Alternatives and structured investments

Alternatives may include hedge funds, commodities, private equity, infrastructure, absolute return strategies, and structured products.

Product type	Main attraction	Key risks
Commodities	Inflation sensitivity, diversification	No income, high volatility, storage/roll costs
Hedge funds	Absolute return aim, specialist strategies	Complexity, leverage, liquidity, manager risk
Private equity	Long-term growth potential	Illiquidity, valuation uncertainty, high risk
Structured products	Defined payoff linked to index/asset	Counterparty risk, complexity, capped upside, conditional protection
Infrastructure	Long-term income potential	Political, regulatory, project, liquidity risk

Structured products are often tested through their conditions. Capital protection may depend on holding to maturity and on issuer solvency.

Fixed Income Cheat Sheet

Bond Price and Yield

\[ \frac{\Delta P}{P} \approx -D_{\text{mod}}\Delta y \]

Concept	Meaning	Exam point
Coupon	Interest rate paid on nominal/par value	Coupon rate is not the investor’s yield unless bought at par and held under simple assumptions.
Current yield	Annual coupon divided by market price	Ignores redemption gain/loss and time value.
Yield to redemption / gross redemption yield	Discount rate equating price to present value of coupons and redemption	Better all-in yield measure if held to maturity and coupons reinvested as assumed.
Clean price	Quoted price excluding accrued interest	Often used in market quotations.
Dirty price	Clean price plus accrued interest	Actual settlement amount normally reflects accrued interest.
Accrued interest	Coupon earned since last payment date	Buyer compensates seller for interest earned before settlement.
Duration	Weighted average timing of cash flows; interest-rate sensitivity	Longer duration means greater price sensitivity to yield changes.
Modified duration	Approximate percentage price change for yield change	Price moves inversely to yield.
Convexity	Curvature in price-yield relationship	Duration approximation is less accurate for large yield changes.
Credit spread	Extra yield over lower-risk benchmark	Wider spread usually means higher perceived credit/default risk.

Notes and examples

Duration Drivers

Factor	Effect on duration	Reason
Longer maturity	Increases duration	Cash flows are received later.
Lower coupon	Increases duration	More value comes from redemption at maturity.
Lower yield	Usually increases duration	Later cash flows receive relatively more weight.
Floating-rate coupon	Usually lowers interest-rate sensitivity	Coupon resets with market rates.
Callable feature	Alters duration profile	Issuer can redeem when favourable to issuer.

Bond Feature Traps

Feature	Who benefits most?	Candidate warning
Callable bond	Issuer	Investor faces reinvestment risk when rates fall.
Puttable bond	Investor	Investor may accept lower yield for protection.
Convertible bond	Investor gains equity option; issuer may pay lower coupon	Carries bond risk plus equity sensitivity.
Subordinated debt	Senior creditors rank ahead	Higher yield compensates for lower priority.
Secured debt	Lender has security over assets	Security reduces but does not remove credit risk.
Perpetual bond	No fixed redemption date	Can have high duration and price volatility.

Equity and Company Analysis

Measure	Plain formula	Interprets	Trap
Earnings per share	profit attributable to ordinary shareholders / weighted average ordinary shares	Profit per share	EPS can rise due to buybacks even if total profit is flat.
Price/earnings ratio	market price per share / EPS	Market price relative to earnings	High P/E may reflect growth expectations or overvaluation.
Dividend yield	dividend per share / market price	Income return from dividends	A high yield can signal distress if price has fallen sharply.
Dividend cover	EPS / dividend per share	Ability to pay dividend from earnings	Low cover may suggest dividend vulnerability.
Net asset value per share	net assets / shares	Balance-sheet value per share	NAV may not reflect market value of intangible growth.
Return on equity	profit after tax / shareholders’ equity	Profitability on equity capital	High leverage can inflate ROE.
Gearing	debt relative to equity or capital	Financial leverage	Increases both potential return and risk.

Notes and examples

Corporate action	What happens	Exam point
Rights issue	Existing shareholders can buy new shares, usually at discount	Not taking up rights can dilute ownership.
Bonus/scrip issue	Additional shares issued from reserves	Wealth usually unchanged; share price adjusts.
Share split	More shares with lower price per share	No economic gain by itself.
Buyback	Company repurchases shares	Can increase EPS and return surplus capital.
Dividend	Cash distribution	Creates income tax issue, not capital gain on receipt.
Preference share dividend	Fixed/preferential dividend	Less upside than ordinary shares; may have bond-like features.

Collective Investments and Fund Structures

Structure	Pricing/trading	Key features	Main risks/traps
Unit trust	Open-ended; units created/cancelled	Trustee structure, priced around NAV	Bid-offer spread or dilution adjustments can affect returns.
OEIC	Open-ended investment company	Single-priced or dual-priced depending structure	Investor still bears market risk.
Investment trust	Closed-ended company traded on exchange	Can trade at discount/premium to NAV; can use gearing	Share price can move differently from underlying NAV.
ETF	Exchange-traded fund	Intraday trading, often index-tracking	Tracking error, bid-offer spread and liquidity still matter.
Active fund	Manager selects securities	Potential alpha	Higher charges can erode returns; underperformance risk.
Passive/index fund	Tracks index	Low-cost market exposure	Tracks benchmark down as well as up.
Income units/shares	Distribute income	Useful where income is required	Income may be taxable even if reinvested elsewhere.
Accumulation units/shares	Reinvest income within fund	Useful for compounding	Reinvested income can still be taxable outside wrappers.

Derivatives and Structured Products

Option Payoff Basics

\[ \text{Long call payoff} = \max(S_T-K,0)-\text{premium} \]\[ \text{Long put payoff} = \max(K-S_T,0)-\text{premium} \]

Position	Market view	Maximum loss	Upside	Main use
Long call	Bullish	Premium paid	Potentially unlimited	Leveraged upside exposure.
Short call	Neutral/bearish	Potentially unlimited	Premium received	Income strategy; high risk if uncovered.
Long put	Bearish or protective	Premium paid	Increases as underlying falls	Portfolio insurance or speculation.
Short put	Neutral/bullish	Large if underlying falls sharply	Premium received	Income strategy with obligation to buy.
Long future	Bullish	Symmetric losses possible	Symmetric gains possible	Lock in purchase price or gain exposure.
Short future	Bearish or hedge long exposure	Symmetric losses possible	Symmetric gains possible	Hedge sale price or reduce exposure.

Notes and examples

Term	Meaning	Trap
Intrinsic value	Immediate exercise value	Out-of-the-money options have no intrinsic value but may have time value.
Time value	Premium above intrinsic value	Falls as expiry approaches, all else equal.
Delta	Sensitivity to underlying price	Not constant; changes with moneyness and time.
Gamma	Sensitivity of delta	Important where positions are large or near expiry.
Theta	Time decay	Usually hurts option buyers.
Vega	Sensitivity to volatility	Higher expected volatility generally increases option values.
Margin	Collateral for potential losses	Futures and short options can require margin calls.
Counterparty risk	Other party fails to perform	More prominent in OTC derivatives and structured products.

Risk Taxonomy

Risk type	What it means	Typical trigger in question	Mitigation or response
Market risk	General market price movements	“Stock market fall”, “interest-rate rise”, “recession”	Asset allocation, hedging, diversification across risk factors.
Specific/idiosyncratic risk	Issuer or company-specific risk	“Single share”, “one employer’s shares”	Diversify holdings.
Systematic risk	Economy-wide risk that cannot be diversified away	“Market beta”, “equity market exposure”	Manage asset allocation or hedge; cannot remove by holding more similar assets.
Credit/default risk	Borrower or issuer fails to pay	“Corporate bond”, “counterparty failure”	Credit quality analysis, diversification, collateral, limits.
Interest-rate risk	Bond prices fall when yields rise	“Long-dated bond”, “duration”	Shorter duration, floating-rate assets, matching liabilities.
Reinvestment risk	Future cash flows reinvested at lower rates	“Callable bond”, “falling rates”	Laddering, matching, non-callable bonds.
Inflation risk	Purchasing power eroded	“Fixed income”, “retirement spending”	Real assets, index-linked securities, growth assets.
Liquidity risk	Cannot sell quickly without price concession	“Property fund”, “thinly traded security”	Liquid assets, cash reserve, appropriate horizon.
Currency risk	Exchange-rate movement affects value	“Overseas investment”	Currency hedging or matching currency to liabilities.
Concentration risk	Too much exposure to one asset/sector	“Inherited share portfolio”, “employer shares”	Diversification plan.
Counterparty risk	Contracting party defaults	“Structured note”, “OTC derivative”	Credit assessment, collateral, regulated counterparties.
Operational risk	Process, system or human failure	“Administration error”, “platform failure”	Controls, reconciliation, governance.
Tax risk	Tax rules or status reduce expected return	“Tax-efficient product”, “allowance exceeded”	Verify wrapper, eligibility and current rules.
Sequence risk	Poor returns early in withdrawal phase	“Drawdown retirement income”	Cash buffer, sustainable withdrawals, diversified income sources.

Notes and examples

Main investment risks

Risk	Meaning	Example
Market risk	Market value falls due to broad conditions	Equity market downturn
Specific risk	Risk linked to one issuer/security	Company profit warning
Systematic risk	Non-diversifiable market-wide risk	Interest rate shock
Unsystematic risk	Diversifiable security-specific risk	Single company failure
Credit/default risk	Issuer fails to meet obligations	Corporate bond default
Counterparty risk	Other party to transaction fails	OTC derivative counterparty default
Liquidity risk	Cannot sell quickly at fair price	Property fund suspension
Inflation risk	Real purchasing power erodes	Cash return below inflation
Interest rate risk	Rate changes affect values/income	Long bond price falls when yields rise
Reinvestment risk	Income or maturity proceeds reinvested at lower rates	Bond coupons reinvested after rates fall
Currency risk	Exchange movements affect return	Overseas equity holding
Political/regulatory risk	Rule or policy change affects value	Tax or sector regulation changes
Operational risk	Process, system, or human failure	Settlement error
Concentration risk	Too much exposure to one asset/sector	Portfolio dominated by employer shares
Sequence risk	Timing of returns affects withdrawals	Retirement drawdown during market fall

Risk-return trade-off

Higher expected return usually requires accepting higher risk, but higher risk does not guarantee higher return.

Exam questions often test whether the candidate understands that:

Cash has low volatility but inflation risk.
Bonds may have lower volatility than equities but still carry credit and interest rate risk.
Equities offer long-term growth potential but high short-term volatility.
Diversification reduces unsystematic risk but cannot remove systematic risk.
Leverage magnifies both gains and losses.

Suitability and Portfolio Construction

Client factor	Why it matters	Product implications
Attitude to risk	Psychological willingness to accept volatility or loss	High-risk products are unsuitable if client cannot tolerate volatility.
Capacity for loss	Financial ability to absorb loss without harming objectives	More important than stated risk appetite where essential goals are at stake.
Knowledge and experience	Ability to understand product complexity	Derivatives, structured products and alternatives require extra care.
Time horizon	Time available to recover from volatility	Equities and illiquid assets generally need longer horizons.
Liquidity need	Need for access to capital	Avoid lock-ins, illiquid assets and long settlement products where access is needed.
Income need	Regular cash flow requirement	Consider yield stability, tax status and capital erosion risk.
Tax status	Marginal rate, allowances, wrappers	Determines after-tax return and suitable account structure.
Existing assets	Current exposure and diversification	New recommendation should consider total portfolio, not product in isolation.
Ethical preferences	Restrictions or preferences	Screened products may alter sector exposure and tracking error.

Notes and examples

Asset Allocation Hierarchy

Define objective and constraints.
Set strategic asset allocation.
Select tax wrapper or account structure.
Choose product type.
Choose underlying holdings or manager.
Monitor risk, performance, costs and tax changes.

Exam trap: do not start with “best product” before identifying objective, risk capacity, time horizon and tax position.

Asset allocation

Asset allocation is often the main driver of portfolio risk and return. It involves deciding how much to allocate to broad asset classes such as cash, bonds, equities, property, and alternatives.

Allocation type	Meaning
Strategic asset allocation	Long-term target mix based on objectives and risk profile
Tactical asset allocation	Short-term deviations based on market views
Dynamic allocation	Ongoing adjustment as conditions or objectives change
Rebalancing	Restoring portfolio to target weights

Diversification

Diversification can occur across:

Asset classes.
Sectors.
Geographic regions.
Currencies.
Issuers.
Fund managers.
Investment styles.
Maturities and credit qualities.

But diversification does not remove all risk. It mainly reduces unsystematic or specific risk.

Efficient frontier

The efficient frontier represents portfolios that offer the highest expected return for a given level of risk, or the lowest risk for a given expected return.

Exam point: a portfolio below the efficient frontier is inefficient because another portfolio offers either higher return for the same risk or lower risk for the same return.

Rebalancing traps

Trap	Correction
Letting winners dominate the portfolio	Rebalancing controls concentration risk
Rebalancing too frequently without considering costs	Transaction costs and tax can reduce benefit
Ignoring client changes	Objectives, time horizon, and risk capacity may change
Treating rebalancing as market timing	It is mainly risk control

Macroeconomic and Market Indicators

Indicator	Usually affects	Interpretation trap
Interest rates rise	Bond prices down; savings rates up; borrowing cost up	Long-duration bonds are usually most sensitive.
Inflation rises	Real returns fall; central bank may tighten policy	Fixed nominal income is vulnerable.
GDP growth strengthens	Corporate earnings may improve	Markets may have already priced expectations.
Unemployment rises	Consumer demand may weaken	Defensive sectors may behave differently from cyclicals.
Currency strengthens	Overseas assets translate into fewer domestic currency units	Helps importers but may hurt exporters.
Yield curve steepens	Longer yields rise relative to shorter yields	May indicate growth/inflation expectations, but context matters.
Yield curve inverts	Short yields exceed long yields	Often associated with tightening and recession concerns.
Credit spreads widen	Risk appetite falls or default risk rises	Corporate bond prices can fall even if government yields are stable.

Taxation Reference for CISI IRT

Tax questions are usually process questions: classify the receipt or disposal, identify the wrapper, apply the correct allowance or relief, then calculate the net result using the current exam figures.

Tax Calculation Workflow

Step	Question to answer	Common exam trap
1. Identify taxpayer	Individual, spouse/civil partner, company, trust, estate?	Do not mix tax positions between people.
2. Identify wrapper	ISA, pension, investment bond, general account, trust?	Wrapper can change income tax and CGT treatment.
3. Classify return	Interest, dividend, property income, employment income, pension income, capital gain?	Income and capital are taxed under different regimes.
4. Gross or net?	Is amount before or after tax/charges?	Net-to-gross questions often require careful reversal.
5. Apply allowances	Personal, savings, dividend, CGT, pension, ISA, IHT bands as relevant	Use the current CISI-provided tax table.
6. Apply rate bands	Which band applies after ordering income correctly?	Higher-rate taxpayers may prefer different wrappers.
7. Apply losses/reliefs	CGT losses, pension relief, venture reliefs, business/property reliefs if relevant	Reliefs are often conditional.
8. Compute after-tax outcome	Net cash flow, tax due, net return or estate effect	Suitability may change after tax.

Notes and examples

Income, Gains and Wrappers

Item	Usual tax category	Exam point
Bank/building society interest	Savings income	Taxable unless sheltered; compare gross and net yield.
Bond coupon	Savings income	Capital movement and coupon income are separate issues.
Equity dividend	Dividend income	Use dividend tax rules and allowances from current materials.
Fund distribution	Interest or dividend depending fund/type	Check whether distribution is classified as interest or dividend.
Accumulation fund income	Usually still treated as received/reinvested for tax outside wrappers	Reinvestment does not automatically avoid tax.
Sale of shares/funds	Capital gain or loss	Apply allowable cost, matching rules and CGT allowance.
ISA income/gains	Sheltered from UK income tax and CGT within wrapper	Subscription limits and eligibility must be checked from current rules.
Pension growth	Tax-privileged within pension	Access and contribution rules are restrictive and change over time.
Investment bond gain	Chargeable event gain	Tax deferral is not the same as tax exemption.
Gifts/estate transfers	Potential IHT issue	Ownership, timing, exemptions and reliefs matter.

Capital Gains Tax Logic

Area	Rule logic	Exam warning
Disposal proceeds	Start with sale proceeds	Deduct allowable disposal costs where permitted.
Acquisition cost	Original purchase cost plus allowable acquisition costs	Do not deduct non-allowable expenses.
Share matching	Same-day acquisitions, then short-period acquisitions, then pooled holding logic	Matching can change the gain from what a simple average suggests.
Losses	Offset allowable capital losses under the applicable rules	Losses may need to be used before annual exemption depending scenario.
Spouse/civil partner transfers	Often tested as tax-neutral planning in UK-style questions	Still consider subsequent disposal and beneficial ownership.
Exempt assets	Some assets are outside CGT	Do not assume every investment gain is taxable; check category.
Wrapper disposal	ISA and pension wrappers usually shelter gains internally	Wrapper suitability still depends on risk and access.

After-Tax Return

\[ r_{\text{after tax}}= \frac{I(1-t_i)+G(1-t_g)-C}{P_0} \]

Where \(I\) is income, \(G\) is gain, \(t_i\) is the relevant income tax rate, \(t_g\) is the relevant capital gains tax rate, \(C\) is costs and \(P_0\) is initial investment.

Pension, ISA and Tax-Advantaged Product Distinctions

Wrapper/product	Main benefit	Main constraint	Exam trap
ISA	Income and gains sheltered from UK income tax and CGT within wrapper	Subscription and eligibility rules	Tax-efficient does not mean capital-protected.
Pension/SIPP	Tax relief on contributions and tax-privileged growth	Access restrictions and contribution limits	Good tax treatment may be unsuitable if funds are needed soon.
General investment account	Flexible ownership and access	Income tax and CGT may apply	Useful after wrappers are used, but tax drag matters.
Onshore investment bond	Tax deferral and chargeable event regime	Tax calculation can be complex	5% withdrawal allowance is tax deferral, not tax-free income.
Offshore investment bond	Gross roll-up potential and chargeable event regime	Tax due may arise on encashment/events	Deferral can create large future tax charge.
EIS/SEIS/VCT-type investments	Potential tax reliefs	High risk, conditions, liquidity limits	Tax relief should not override suitability.
Trust structure	Control, estate planning or beneficiary planning	Tax and legal complexity	Tax treatment depends on trust type and current rules.

Investment Product Tax Traps

Scenario wording	Likely tested point
“Client wants income but is a higher-rate taxpayer”	Compare dividend, interest, bond, ISA and pension treatment after tax.
“Client reinvests all distributions”	Reinvestment does not automatically remove taxable income outside wrappers.
“Fund is held in an ISA”	Income and gains are sheltered within the ISA, subject to wrapper rules.
“Capital protection note issued by bank”	Protection depends on issuer/counterparty and terms.
“High dividend yield share”	Could signal falling share price or dividend risk.
“Long-dated gilt before rate rise”	Price fall due to duration risk.
“Overseas equity fund”	Currency risk plus local market risk; tax treatment depends on wrapper and status.
“Retired client drawing income from volatile portfolio”	Sequence risk and capital depletion.
“Low-risk client attracted by EIS/VCT relief”	Tax relief does not remove investment and liquidity risk.
“Corporate bond with higher yield”	Check credit risk, duration, liquidity and tax treatment.

Notes and examples

Product and tax interaction review

Investment	Return type	Main risks	Tax review point
Cash deposit	Interest	Inflation, provider, reinvestment	Interest taxation or wrapper treatment
Government bond	Coupon and capital movement	Interest rate, inflation, duration	Interest vs gain treatment may differ by instrument
Corporate bond	Coupon and capital movement	Credit, interest rate, liquidity	Higher yield may mean higher default risk
Equity	Dividends and gains	Market, specific, liquidity	Dividend vs capital gain distinction
Equity income fund	Distributions and gains	Market, manager, concentration	Distribution type and wrapper matter
Property fund	Rental-linked income and capital value	Liquidity, valuation, property market	Income/distribution treatment
ETF/index fund	Distributions and gains	Market, tracking error, liquidity	Tax depends on asset type and wrapper
Structured product	Conditional payoff	Counterparty, complexity, market link	Return may have specific tax treatment
Pension wrapper	Retirement benefits	Investment, access, policy risk	Tax relief and withdrawal rules are key concepts
ISA wrapper	Tax-efficient returns	Underlying investment risk	Wrapper does not remove market risk

Fast Product Selection Rules

Client need	Products often considered	Products to question carefully
Emergency cash reserve	Cash deposits, money market funds	Equities, property, structured products, pensions
Known short-term liability	Cash or short-duration high-quality bonds	Long-duration bonds, equities, illiquid alternatives
Long-term growth	Diversified equities, multi-asset funds, pensions/ISAs	Concentrated single shares, high-cost complex products
Regular income	Bonds, equity income funds, property income funds, annuity-style products	High-yield products without credit/liquidity review
Inflation protection	Equities, index-linked bonds, real assets	Fixed nominal cash/bonds as sole long-term holding
Tax efficiency	ISA, pension, appropriate allowances, tax-managed funds	Tax-driven high-risk products if suitability is weak
Capital preservation	Cash, short-dated high-quality bonds, guaranteed structures if counterparty sound	Unsecured structured notes, high-yield debt, equities
Diversification	Multi-asset funds, global exposure, low-correlation assets	More funds holding the same underlying exposures

Common Calculation Traps Checklist

Use decimal form for percentages in formulas.
Convert time periods consistently before annualising.
Do not confuse coupon rate with yield.
For bonds, price and yield move inversely.
For return, include income, capital gain/loss and costs.
For real return, adjust for inflation using the compound formula, not simple subtraction unless approximation is acceptable.
For portfolio risk, correlation matters; weighted average volatility is usually wrong unless correlation is +1.
For beta, measure market sensitivity, not total standalone volatility.
For Sharpe ratio, use excess return over the risk-free rate.
For tax, classify income and gains before applying rates.
For wrappers, separate tax efficiency from investment risk.
For derivatives, remember short positions can create losses larger than premium received.

Final Exam-Readiness Checklist

Before answering a CISI Investment, Risk and Taxation question, identify:

The investor objective.
The time horizon and liquidity need.
The risk type being tested.
Whether the question asks pre-tax or after-tax outcome.
Whether return is income, capital or total return.
Whether a wrapper changes the tax answer.
Whether diversification actually reduces the relevant risk.
Whether the product’s complexity or liquidity conflicts with suitability.
Whether the calculation uses current exam tax rates and allowances.
Whether the answer is asking for the best fit, the main risk, or the most accurate calculation.

Next step: practise mixed CISI IRT question sets that combine product selection, risk identification and tax treatment in the same scenario, then review every missed question by classifying the error as formula, product knowledge, risk analysis or tax logic.

Notes and examples

Final review checklist

Before moving to mock exams, make sure you can explain:

The difference between income return and capital return.
Why bond prices fall when yields rise.
How duration affects bond risk.
Why high yield may indicate high credit risk.
How ordinary shares differ from preference shares.
Why investment trusts can trade at discounts or premiums.
How ETFs differ from traditional open-ended funds.
The difference between systematic and unsystematic risk.
What correlation means for diversification.
When beta is more relevant than standard deviation.
Why tax wrappers affect tax outcome but not underlying investment risk.
How to classify investment returns for tax purposes.
Why liquidity and time horizon can override expected return.
How charges, tax, and inflation affect real investor outcomes.

High-yield topic map

Area	What to know quickly	Common exam angle
Investment objectives	Income, growth, preservation, liquidity, time horizon, risk appetite, capacity for loss	Matching client objective to suitable investment approach
Asset classes	Cash, bonds, equities, property, alternatives, derivatives, collectives	Ranking risks and expected returns
Fixed income	Price/yield relationship, coupon, redemption, duration, credit risk, inflation risk	Impact of rate changes on bond values
Equities	Ordinary shares, preference shares, dividends, rights issues, valuation ratios	Income vs capital growth and shareholder rights
Funds and wrappers	OEICs, unit trusts, investment trusts, ETFs, pensions, ISAs, insurance wrappers	Tax, diversification, charges, liquidity, structure
Risk measurement	Standard deviation, correlation, beta, alpha, Sharpe ratio, value at risk concepts	Selecting correct risk measure
Portfolio construction	Diversification, asset allocation, rebalancing, efficient frontier, CAPM	Why combining assets can reduce risk
Taxation	Income tax, CGT, dividend taxation, interest, wrappers, reliefs, allowances	Correct order of tax calculation and classification
Suitability logic	Objective, risk, horizon, liquidity, tax position, concentration	Best recommendation or most unsuitable feature

Core exam mindset

For each scenario, ask four questions:

What is the investment trying to achieve? Income, growth, capital preservation, tax efficiency, hedging, diversification, or speculation.
What is the main risk? Market, credit, liquidity, inflation, interest rate, currency, counterparty, reinvestment, concentration, or tax risk.
What is the relevant tax category? Income, dividend, interest, capital gain, exempt income, wrapper taxation, or deferred taxation.
What feature changes the answer? Time horizon, access needs, tax status, product structure, leverage, guarantees, charges, or currency exposure.

Investment objectives and client constraints

Objectives

Objective	Typical focus	Potentially suitable features	Watch for
Capital preservation	Avoiding loss of nominal capital	Cash, short-dated high-quality bonds, protected products	Inflation risk and low real return
Income	Regular cash flow	Bonds, equity income funds, dividends, property income	Income variability and tax treatment
Capital growth	Long-term appreciation	Equities, growth funds, real assets	Volatility and timing risk
Total return	Combination of income and growth	Diversified portfolios	Need to separate income yield from capital return
Tax efficiency	Reducing tax drag legally	Tax wrappers, allowances, asset location	Tax rules can change
Hedging	Reducing a specific risk	Derivatives, currency hedges, duration management	Hedge cost and basis risk

Notes and examples

Constraints

Constraint	Why it matters	Exam trap
Time horizon	Longer horizons usually allow more volatility	Assuming “young client” always means high risk is suitable
Liquidity need	Determines ability to hold illiquid or volatile assets	Ignoring planned withdrawals
Risk tolerance	Psychological willingness to accept losses	Confusing tolerance with capacity
Capacity for loss	Financial ability to absorb losses	Recommending high risk to a client who cannot afford loss
Tax status	Determines after-tax return	Choosing highest gross return instead of best net return
Existing holdings	Affects concentration and diversification	Treating one product in isolation
Knowledge and experience	Affects complexity suitability	Recommending derivatives or structured products too readily

Risk tolerance vs capacity for loss

Concept	Meaning	Example
Risk tolerance	Willingness to accept volatility or loss	Client says they are comfortable with equity market falls
Capacity for loss	Ability to withstand loss without damaging objectives	Client depends on capital for near-term living expenses
Required risk	Risk needed to meet target return	Client’s goal may require more risk than they can tolerate

A common scenario trap is to focus only on stated willingness. If the client has low capacity for loss or a short time horizon, a high-risk recommendation may still be unsuitable.

Collective investments and pooled vehicles

Main collective structures

Vehicle	Key features	Exam focus
Unit trust	Open-ended fund with units	Price reflects underlying assets less charges
OEIC	Open-ended investment company	Single pricing commonly tested conceptually
Investment trust	Closed-ended company listed on exchange	Can trade at premium/discount to NAV; can borrow
ETF	Exchange-traded fund, often index-tracking	Intraday trading, tracking error, market liquidity
Index fund	Tracks benchmark	Lower cost, benchmark exposure
Active fund	Manager selects holdings	Manager risk, higher charges, potential outperformance/underperformance

Notes and examples

Open-ended vs closed-ended funds

Feature	Open-ended funds	Closed-ended funds
Units/shares	Created or cancelled based on demand	Fixed share capital unless corporate action
Pricing	Based mainly on NAV	Market price may differ from NAV
Liquidity	Fund deals with subscriptions/redemptions	Investor trades shares in market
Gearing	Usually limited by rules/mandate	Investment trusts may use borrowing
Exam trap	Assuming all funds trade exactly at NAV	Closed-ended funds can trade at premium/discount

Charges and performance

Know the effect of:

Initial charges or entry costs.
Ongoing charges.
Platform or adviser charges.
Performance fees.
Bid-offer spread.
Stamp or transaction costs where relevant.
Tracking error for passive products.

The exam may ask for the best net outcome, not the best headline return.

Derivatives review

Derivatives derive value from an underlying asset, index, rate, or event. They can be used for hedging, efficient portfolio management, income enhancement, or speculation.

Futures and forwards

Feature	Futures	Forwards
Trading	Exchange-traded	Over-the-counter
Standardisation	Standardised contracts	Custom terms
Counterparty risk	Reduced by clearing arrangements	Direct counterparty exposure
Liquidity	Often higher	Depends on contract
Margining	Daily margining common	Negotiated terms

Notes and examples

Options

Option	Right of holder	Typical use
Call option	Right to buy underlying	Benefit from price rise; hedge short exposure
Put option	Right to sell underlying	Protect against price fall; hedge long exposure

Option buyer:

Pays premium.
Has a right, not an obligation.
Maximum loss is usually the premium paid.

Option writer:

Receives premium.
Takes on obligation if exercised.
May face substantial or unlimited loss depending on position.

Option payoff intuition

Position	Wants underlying to	Risk profile
Buy call	Rise	Limited loss, upside potential
Sell call	Stay flat/fall	Premium income, potentially large loss
Buy put	Fall	Limited loss, downside protection
Sell put	Stay flat/rise	Premium income, loss if underlying falls

Derivative traps

Trap	Correct approach
Treating derivatives as always speculative	They can be used to hedge risk
Ignoring leverage	Small price movements can have large effects
Confusing option buyer and writer	Buyer has right; writer has obligation
Ignoring counterparty risk	Especially relevant for OTC derivatives
Forgetting margin calls	Futures and written options may require additional collateral

Risk measures and portfolio statistics

Standard deviation

Standard deviation measures dispersion of returns around the average. Higher standard deviation usually indicates higher volatility.

Use it when the question asks about:

Variability of returns.
Total risk.
Volatility comparison.

Notes and examples

Correlation

Correlation measures how two assets move relative to each other.

Correlation	Meaning	Diversification effect
+1	Move perfectly together	No diversification benefit
0	No linear relationship	Some diversification benefit
-1	Move exactly opposite	Maximum theoretical diversification benefit

Diversification works best when assets are not perfectly positively correlated.

Beta

Beta measures sensitivity to market movements.

Beta	Interpretation
1.0	Moves broadly in line with the market
Above 1.0	More volatile than the market
Below 1.0	Less volatile than the market
Negative	Tends to move opposite to the market

Beta is a measure of systematic risk, not total risk.

Alpha

Alpha measures return above or below that expected for the level of market risk taken. Positive alpha suggests outperformance after adjusting for market exposure; negative alpha suggests underperformance.

Sharpe ratio

The Sharpe ratio compares excess return with total volatility:

\[ \text{Sharpe ratio} = \frac{\text{portfolio return} - \text{risk-free return}}{\text{standard deviation}} \]

Higher Sharpe ratio generally indicates better risk-adjusted return, assuming inputs are comparable.

CAPM

The Capital Asset Pricing Model links expected return to systematic risk:

\[ E(R_i) = R_f + \beta_i \times [E(R_m) - R_f] \]

Where:

\(E(R_i)\) is expected return on the investment.
\(R_f\) is the risk-free rate.
\(\beta_i\) is beta.
\(E(R_m) - R_f\) is the market risk premium.

Common trap: CAPM uses beta, not standard deviation.

Taxation review

Tax questions usually test classification, order, and treatment rather than only arithmetic. Always check the current examinable material for the relevant tax rates, bands, allowances, exemptions, and reliefs, because tax rules and thresholds can change.

Tax decision path

    flowchart TD
	    A[Investment cash flow or disposal] --> B{Income or capital?}
	    B -->|Interest/rent/coupon| C[Consider income tax treatment]
	    B -->|Dividend/distribution| D[Consider dividend tax treatment]
	    B -->|Disposal/gain| E[Consider capital gains treatment]
	    C --> F{Held inside tax wrapper?}
	    D --> F
	    E --> F
	    F -->|Yes| G[Apply wrapper rules]
	    F -->|No| H[Apply taxpayer status, allowances, bands, reliefs]
	    H --> I[Calculate net return or tax liability]
	    G --> I

Notes and examples

Core taxation categories

Category	Typical investment relevance	Exam focus
Income tax	Interest, bond coupons, property income, some distributions	Identifying taxable income type
Dividend tax	Company dividends and equity fund distributions	Distinguishing dividends from interest
Capital gains tax	Gain on disposal of chargeable assets	Disposal proceeds, cost, losses, exemptions
Inheritance tax	Estate planning and transfers	Potential tax on death or lifetime transfers
Stamp taxes	Certain purchases of securities/property	Transaction cost impact
Tax wrappers	ISAs, pensions, insurance-based wrappers	Tax deferral, exemption, access limits, contribution rules

Income vs capital

Item	Usually treated as	Review point
Bank interest	Income	May have specific allowances or tax rules
Bond coupon	Income	Do not confuse with capital gain/loss on sale
Equity dividend	Dividend income	Different from interest
Rental income	Income	Expenses and property rules may matter
Increase in share price	Capital gain only when realised	Unrealised gains are not usually taxed as disposals
Sale of investment above cost	Capital gain	Losses and exemptions may apply
Fund distribution	Depends on fund asset mix/type	Could be interest or dividend distribution depending on structure

Capital gains calculation framework

A generic capital gains calculation follows this logic:

Identify disposal proceeds.
Deduct allowable acquisition cost.
Deduct allowable disposal/acquisition costs if relevant.
Identify resulting gain or loss.
Offset allowable losses according to the relevant rules.
Apply available exemptions or reliefs.
Apply the correct tax rate based on taxpayer status and asset type.

Generic formula:

\[ \text{Chargeable gain} = \text{disposal proceeds} - \text{allowable cost} - \text{allowable expenses} - \text{allowable reliefs/losses} \]

Use the tax rules and rates specified in the current examinable syllabus material.

Investment wrappers

Wrapper	Main concept	Exam angle
ISA	Tax-efficient holding environment for eligible investments	Distinguish wrapper tax treatment from underlying asset risk
Pension	Tax-advantaged long-term retirement saving	Access restrictions, contribution/tax relief concepts
Investment bond	Insurance-based wrapper with tax deferral features	Chargeable event logic may be tested conceptually
Bare trust/discretionary trust concepts	Legal ownership and taxation may differ	Beneficiary/trustee tax treatment can matter

Do not assume a tax wrapper makes an investment suitable. The underlying asset risk, liquidity, charges, and time horizon still matter.

Tax-efficient investing

Tax efficiency may involve:

Using appropriate wrappers.
Matching assets to the right account type.
Making use of available allowances and exemptions.
Timing disposals.
Offsetting losses where permitted.
Considering income vs capital return.
Considering spouse/civil partner planning where relevant to the syllabus.
Avoiding unnecessary transaction costs and tax leakage.

Common trap: choosing the investment with the highest pre-tax return when the question asks for the best after-tax outcome.

Suitability and scenario decision rules

Suitability checklist

Before selecting an answer, check:

Objective: income, growth, preservation, tax efficiency, hedging.
Time horizon: short, medium, long.
Liquidity: planned withdrawals or emergency access.
Risk tolerance: willingness to accept volatility.
Capacity for loss: financial ability to absorb loss.
Tax position: marginal rate, allowances, wrappers, existing gains/losses.
Existing assets: concentration and diversification.
Product complexity: client understanding and need.
Charges: effect on net return.
Currency exposure: domestic vs overseas holdings.
Guarantees: who provides them and under what conditions.

Notes and examples

Quick suitability examples

Scenario clue	Likely implication
Needs money in six months	Avoid high-volatility or illiquid investments
Wants long-term growth and can accept volatility	Equities or diversified growth portfolio may be relevant
Depends on portfolio for essential income	Income reliability and capital preservation become important
Large holding in employer shares	Concentration risk is a major issue
High tax rate and unused wrapper allowance	Tax wrapper may improve net outcome
No investment experience and cautious attitude	Avoid complex leveraged products
Concerned about inflation over long term	Cash alone may be unsuitable
Wants downside protection	Consider protection terms, counterparty risk, cost, and limits

Common calculation areas

Total return

Total return includes income and capital movement.

\[ \text{Total return} = \frac{\text{income received} + \text{ending value} - \text{starting value}}{\text{starting value}} \]

Do not confuse income yield with total return.

Running yield

\[ \text{Running yield} = \frac{\text{annual coupon}}{\text{current market price}} \]

This does not include gain or loss to redemption.

Dividend yield

\[ \text{Dividend yield} = \frac{\text{annual dividend per share}}{\text{share price}} \]

A high yield can result from a falling share price.

Price/earnings ratio

\[ \text{P/E ratio} = \frac{\text{share price}}{\text{earnings per share}} \]

A higher P/E may indicate growth expectations, overvaluation, or both depending on context.

Real return

\[ \text{Approximate real return} \approx \text{nominal return} - \text{inflation rate} \]

Use real return when the question concerns purchasing power.

Common traps and candidate mistakes

Mistake	Why it loses marks	Better approach
Reading only the final sentence	Scenario clues often change suitability	Note objective, horizon, tax, risk, liquidity
Selecting highest return	Highest return may mean excessive risk	Compare risk-adjusted and after-tax outcomes
Treating all bonds as safe	Bonds carry duration, credit, inflation, and liquidity risk	Identify the specific bond risk
Ignoring tax wrappers	Net return may depend on wrapper treatment	Separate underlying investment from wrapper
Confusing risk tolerance with capacity	Willingness is not ability	Use both in suitability judgement
Assuming diversification eliminates all risk	Systematic risk remains	State what diversification can and cannot do
Confusing income and capital	Tax and suitability differ	Classify each cash flow correctly
Ignoring charges	Costs reduce net return	Consider total cost of ownership
Missing currency risk	Overseas assets add FX exposure	Distinguish local asset return from sterling return
Overlooking liquidity	Some assets cannot be sold quickly at fair value	Match liquidity to client needs
Assuming protection is absolute	Conditions and counterparty matter	Read product terms carefully
Memorising tax rates only	Exam often tests method and classification	Learn the calculation sequence

Fast comparison tables

Asset class risk comparison

Asset class	Expected return potential	Volatility	Income	Liquidity	Key risk
Cash	Low	Low nominal	Interest	High	Inflation
Short-dated high-quality bonds	Low to moderate	Low to moderate	Coupon	Usually moderate/high	Interest rate and reinvestment
Long-dated bonds	Moderate	Moderate/high	Coupon	Varies	Duration
High-yield bonds	Moderate/high	Moderate/high	Coupon	Varies	Credit/default
Equities	High long-term potential	High	Dividends	Usually high if listed	Market and specific risk
Property	Moderate	Moderate	Rent/distributions	Often low/moderate	Liquidity and valuation
Alternatives	Varies widely	Varies widely	Varies	Often lower	Complexity and liquidity
Derivatives	Varies, leveraged	High	Usually none unless strategy-based	Varies	Leverage and counterparty

Notes and examples

Investment objective to risk focus

Objective	Primary risk to manage
Short-term capital security	Market volatility and liquidity
Long-term capital growth	Inflation risk and underinvestment risk
Income generation	Income sustainability and tax drag
Retirement drawdown	Sequence risk and longevity risk
Tax efficiency	Tax rule changes and product constraints
Diversification	Correlation and concentration risk
Hedging	Basis risk, cost, and imperfect protection

Risk measure selection

Question asks about	Likely measure/concept
Volatility of returns	Standard deviation
Market sensitivity	Beta
Diversification benefit	Correlation
Excess return for total risk	Sharpe ratio
Manager skill after market exposure	Alpha
Bond price sensitivity	Duration
Probability-style loss estimate	Value at risk concept
Extreme but plausible events	Stress testing/scenario analysis

Practical exam technique

When a question includes a client scenario

Use this order:

Identify the client’s primary objective.
Identify constraints.
Eliminate unsuitable choices first.
Compare remaining choices on risk, tax, liquidity, and complexity.
Choose the answer that best fits the whole fact pattern, not just one clue.

When a question includes tax details

Identify the taxpayer and wrapper.
Classify the return as income, dividend, interest, or capital.
Apply current examinable allowances, exemptions, rates, or reliefs.
Consider losses and timing.
Calculate the net result.
Check whether the question asks for liability, net proceeds, net return, or suitability.

When a question includes investment performance

Check whether the answer requires:

Income yield.
Capital return.
Total return.
Real return.
Risk-adjusted return.
After-tax return.
Benchmark-relative return.

Many incorrect answers come from using the wrong return measure.

Suggested next step

Use this Cheat Sheet as a checklist, then move into independent companion practice: start with topic drills on investments, risk, and taxation, review the detailed explanations for every missed question, and then attempt mixed mock exams using original practice questions from a question bank.

Put the review into practice

Finance Prep

Start CISI IRT \u2014 CISI Investment, Risk and Taxation on Web

Use the web app to preview question style, then practise the topics you need to revisit.

Original Finance Prep practice, independent from CISI: not official CISI questions, copied live-exam content, or exam dumps.

Current alignment Aligned to the relevant syllabus, exam elements, competency areas, and topic weights where they are available.

Practice modes Use topic drills, timed mocks, scenario questions, and focused review before deeper mixed practice.

Teaching explanations Explanations show the client, product, compliance, or calculation rule that makes the best answer defensible.

Stable bank Questions are prebuilt and reviewed before publication, so practice is stable and inspectable, not improvised during a quiz.

Study Plan