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Investment, Risk and Taxation > 1 - Asset Classes (14/80) > Flashcards

1 - Asset Classes (14/80) Flashcards

1
Q

Stamp Duty Land Tax Bands

A

0% on first £125,000

2% on the £125,000 - £250,000

5% on £250,000 - £925,000

10% on £925,000 - £1,500,000

12% on >£1,500,000

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2
Q

Stamp Duty Land Tax for Investment Companies

A

15% if costing more than £500,000

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3
Q

A fund whose unit/share price does not change during its life

A

Constant net asset value fund

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4
Q

Retail Bond settlement time

A

T + 1

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5
Q

Offer For Sale

A

Purchase of bonds by a bank syndicate (underwriting)

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6
Q

Terminal Wealth

A

Capital x (1 + r/Nj) ^ Nj

N = years
j = times interest paid per year
r = interest rate
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7
Q

Annual Equivalent Rate

A

Takes into account how often interest is paid. More often = higher effective rate

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8
Q

Savings Tax Allowances

A

Basic rate = £1000
Higher rate = £500
Additional rate = £0

Starter Rate = £5,000 above income tax personal allowance

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9
Q

Real Rate

A

Nominal Rate - Inflation Rate
(or)
(1 + Nominal) / (1 + Inflation) - 1

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10
Q

Requirement-linked accounts

A

Accounts w/ higher rates but balance/time requirements

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11
Q

Cash risks

A

Capital
Inflation
Interest rate
Operational

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12
Q

FOS Compensation

A

£355,000 after April 2020
£350,000 2019-2020
£160,000 before

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13
Q

FSCS Compensation

A

£85,000 per account

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14
Q

Types of Deposit Account

A 
Current
Instant access
Notice
Fixed rate
Term
Money market
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15
Q

NAV Types of Money Market Funds

A
  1. Constant NAV - income paid out or buys more units (face value is constant)
  2. Accumulating NAV - income accumulates and increases NAV
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16
Q

Cash benchmarks

A

LIBOR - rate banks take deposits from each other
LIBID - rate banks lend to each other
Replaced by Sterling Overnight Index Average (SONIA)

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17
Q

Commercial paper

A

Short-term corporate debt
Backed by assets
Can roll over into longer term
Gives access to funding

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18
Q

P2P Lending

A

Default risk - spread out among many small lenders
Liquidity risk

Returns higher than others
Not guaranteed by FSCS

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19
Q

Debt Management Office

A

Issue government bonds/gilts

Buy through Computershare

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20
Q

Gilts

A

Government bonds issued by the Debt Management Office
Used to cover ‘Central Gov. Cash Requirement’
-> Part of PSNCR (public sector)

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21
Q

Gilt types

A

Index-linked (linker)
Convertible - can change terms
Floating rate

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22
Q

Bulldog bond

A

Sterling-denominated bond issued by a foreign issuer

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23
Q

Index-Linked Bonds

A

Usually tied to inflation

YTM considered to be real yield (inflation baked in)

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24
Q

Treasury Bills

A

Issued by DMO
Zero-coupon
Min. £500,000

Usually <6 months

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25
Q

Types of Corporate Bond

A

Debentures - secured by assets

Convertibles - can be converted to shares (price diff = premium)

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26
Q

Eurobonds

A

Any bond issued in a different country from the issuer

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27
Q

Floating Rate Notes

A

Bond with a variable coupon

Tied to a benchmark; usually 3 year terms

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28
Q

Contingent Convertibles

A

Convert due to a specific event e.g. share price hitting X

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29
Q

Running Yield / Interest Yield

A

Gross Coupon / Bond Market Price

Doesn’t include capital gains/losses

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30
Q

Yield to Redemption / Yield to Maturity

A

[Coupon / Bond Market Price] + [CG / Years to Maturity]

CG = (Par - Bond Market Price) / Bond Market Price

Includes income and capital gain / loss

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31
Q

Duration

A

Price sensitivity of bonds

% price change = -(duration x % change in yield)

32
Q

Yield Curve

A

Normal = upwards parabola (interest rates increase w/ maturity)

Flat = no change with maturity (rates expected to fall)

Inverted = downwards parabola (inflation and rates expected to fall)

33
Q

Fixed Income Risks

A 
Liquidity
Interest rate
Inflation
Issuer
Credit rating
Credit enhancement (risk may be passed on)
34
Q

Capital Structure Seniority

A
  1. Unsubordinated debt
  2. Subordinated debt
  3. Preference shares
  4. Ordinary shares
35
Q

Clean vs dirty bond price

A

Clean price = without accrued interest (accrued = x/365)

Dirty price = Clean price + ( [coupon/period] x [days since coupon/days between coupons] )

Period usually = 2 as paid twice a year
i.e. usually: (coupon/2) x (days/183)

36
Q

Bond indices

A

Harder to create than equities due to huge universe

Pricing:
capital index (clean price)
or
total return index (YTM)

Weighted by issuance value

FTSE Global Bond series

37
Q

Ordinary share

A

Voting rights

Lowest in seniority

38
Q

Redeemable shares

A

Agreed to buy back at a certain date

39
Q

Dual-class shares

A

Different voting rights and dividends (Class A, B etc.)

Good for founders retaining control

40
Q

Deferred dividend shares

A

Dividends paid on certain conditions

41
Q

Deferred ordinary shares (founder shares)

A

Usually given to founders/execs
No dividend until others are paid
Larger portion of profits later

42
Q

Preference shares

A

More rights and security/seniority
First access to dividends before ordinary shareholders

Cumulative dividends (rolls over)
Non-cumulative dividends
Participating (fixed dividend w right to more profits)
Redeemable
Convertible
43
Q

Types of Private Equity

A 
LBOs
Venture capital
Growth capital
Distressed
Mezzanine (incl. bridging) - sits in subordinated and preference
44
Q

Equity risks

A

Liquidity
Growth
Volatility
Issuer/company

45
Q

Capitalisation issue / ‘bonus’ issue

A

Issue shares to clean balance sheet and increase marketability

e.g. 1-for-4 shares issued from reserve share capital, so shouldn’t dilute share price

Ex-Cap price tends to fall as new shares have no value

46
Q

Stock split

A

Share price split into X amount of smaller shares

47
Q

Rights issue

A

Ask investors to buy more shares at a discount (give them the right)

Usually one-for-many e.g. 1:3 means 1 share for every 3 owned

Ex-rights price = weighted average of old price and rights issue price

48
Q

OTC

A

Bilateral contract

Usually forwards/swaps

49
Q

Multilateral trading platform

A

Software matches multiple buyers and sellers

‘Organised trade facilities’ a type of MTP - derivatives, structured products etc.

50
Q

Cum and Ex-Dividend Prices

A 
Cum = prices slightly higher due to carrying right to dividend
Ex = no dividend; usually a week before dividend is issued
51
Q

Equity indices

A

Market-cap weighted
Price-weighted
Equal-weighted

Price return
Total return
Net total return (after taxes)

52
Q

Equity Metrics

A

Dividend Yield = Dividend / Share Price
(calculated after profits paid to preferred shareholders)

EPS = Earnings / Share #

Price to Equity = Share Price / EPS

Dividend Cover = EPS / Div. per Share (<1.5 considered too low)

Gearing = Liabilities / Capital Employed

Enterprise Value = MV + Debt - Cash (value if sold)

53
Q

Fund costs

A 
Initial / load costs
Annual management costs
Ongoing charges (comm, accounting etc.)
Performance charges
Exit charges
Unquoted charges (trading, spreads etc.)
54
Q

ETF creation

A

Created by buying securities and exchanging them for a ‘creation basket’. Shares are then sold on exchanges.

Cheaper, more liquid, daily pricing etc. than mutual funds

55
Q

Property performance factors

A

Business cycle
GDP
Inflation

56
Q

Property ownership structures

A

Freehold
Leasehold
Commonhold

57
Q

Property Valuation

A

Rental/Initial Yield = Rent / Total Cost

Cap Rate = [All Income - Expenses] / Total Cost

Reversionary Value = value at end of the lease

58
Q

Other assets (art, antiques, metals etc.)

A

Lower liquidity
High dealer fees
Storage costs
Prices change with trends

But they can be FUN to collect

59
Q

Stepped Preference Shares

A

Offer capital growth with predetermined redemption value at wind-up
Good for growth

60
Q

Premium Bonds

A

Guaranteed by government
Chance to win up to £1m every month
34,500 to one chance of winning for every £1

Min £25
Max £50,000

61
Q

Overdraft fees

A

Excessive fees banned in 2020

Single interest rate

62
Q

NS&I products

A

No CGT liability

Some have income tax liability

63
Q

NS&I products with income tax

A 
Investment account
Direct Saver account
Guaranteed income bond
Income bond
Guaranteed growth bond
64
Q

Changing inflation measures

A

Government moving RPI in line with CPIH by 2030

65
Q

French bonds

A 
OATs = 2-50 years
BTFs =  <12 months
66
Q

German bonds

A 
Bunds = 10-30 years
Bobls = 3-5 years
Schatz = 2 years
67
Q

Italian bonds

A 
BTPs = 3-30 years
CCTs = 7 years
68
Q

Spanish bonds

A 
BONOs = 3-5 years
OES = 10 years
69
Q

Japanese bonds

A

JGBs = 10 years

Some ‘super long’ are 20 years

70
Q

International Order Book

A

Tap into world markets with one order book

71
Q

SETS and SEAQ

A

SETS = platform/order book for FTSE-listed and top 150 AIM shares

SEAQ = non-online book used by market makers for firms not accessed by SETS

72
Q

International Board trading service

A

UK-Singapore agreement

Used to trade STI 30 and MSCI Singapore

73
Q

Residential vs Commercial Property - Repairs

A

Residential = landlord responsible

Commercial = tenant responsible

74
Q

Residential vs Commercial Property - Leases

A

Residential = short, void periods

Commercial = long; 10+ years

75
Q

Property ‘scenarios’ (best, worst)

A

Best = high growth, low inflation, low rates

Worst = opposite

High GDP growth is beneficial unless inflation is also high

76
Q

Property Authorised Investment Funds (PAIF)

A

Invest in property and REITs

Property income exempt from income tax
Disposals taxed as CGT (not income like REITs)

Must distribute 100% of rent (not 90% like REITs)
>60% of income from property
>60% of NAV from property
Shares must be widely held

Investment, Risk and Taxation (8 decks)

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