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R02 - 2023 > 2 - Equties, property and alternative investments > Flashcards

2 - Equties, property and alternative investments Flashcards

1
Q

What is an Equity

A

A share of company

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2
Q

What affects share prices long term

A

Fundamental economic and political factors

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3
Q

What affects share prices short term

A

Investor sentiment

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4
Q

What are some other factors affecting share prices

(6)

A
  • External economic and political factors
  • Investor sentiment
  • Profit expectations
  • Dividend expectation
  • Takeover activity
  • Quality and track record of management
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5
Q

Where are shares dealt with in the UK

A

London stock exchange

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6
Q

What must happen when shares are first issued to LSE

A

They must be admitted to the official list or main market or AIM

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7
Q

What is official list or main market

Who are they regulated by

A

Companies listed on LSE make up main market
Regulated by UKLA (United Kingdom Listing authority) (part of FCA)

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8
Q

What do the UKLA aim to do

A

Govern ongoing behaviour of listing companies and way in which they report to shareholders

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9
Q

What is AIM

A

LSE launched AIM to provide primary and secondary market facilities for companies too small or too new to apply to LSE (interim to ful listing)

Shares are not classified as listed (too small company)

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10
Q

Costs of buying and selling shares

4

A

Commission
Stamp duty
Stamp duty reserve tax
Panel on takeovers and mergers levy

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11
Q

What is commission generally for stockbrokers

A

tiered

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12
Q

When is stamp duty paid on shares

A

If shares transaction is > £1000

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13
Q

When is SDRT paid

Is there a limit?

A

shares bought electronically through certificateless for electronic share transfer (CREST) system

£1000 limit does not apply

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14
Q

What is the rate of tax for stamp duty and SDRT

A

0.5%

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15
Q

Who is stamp duty and SDRT paid by
How is it rounded
How is SDRT rounded

A

Paid by purchaser
Stamp duty rounded to next multiple of £5
SDRT rounded to nearest penny

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16
Q

What is the PTM levy

A

Flat rate charge of £1 applied to trade over £10,000

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17
Q

What is the PTM

A

Regulatory body that oversees all takeovers and mergers of companies listed on LSE

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18
Q

What are the two main classes of share capital

A

Ordinary shares
Preference shares

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19
Q

What are the features of preference shares

How is it paid? What is the priority over ordinary shares

A

Pay a fixed rate of dividend half yearly
Divendend is only paid if there are sufficient after tax profit
Payment of dividend on shares has priority over payments on ordinary shares

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20
Q

Do preference shares have voting rights?

A

No unless payment of dividends has fallen into arrereas

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21
Q

What are some types of preference shares

A

Cumulative preference shares
Non cumulative preference shares
Participating preference shares
Redeemable preference shares
Convertible preference shares

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22
Q

What is a cumulative preference share

A

If company has insufficient profits in one year to pay dividends, it carries forward. These shares have priority over all other shares

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23
Q

Non-cumulative preference shares

A

Lose the right to receive any unpaid divedend at financial year

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24
Q

Participating preference shares

A

Pay a fixed rate of divedend and allow holder to participate in profits of company

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25
Q

Redeemable preference shares

A

Represent a temporary source of finance for the company
Dividend will paid to shareholder for short period and share will then be repaid

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26
Q

Convertible preference shares

A

Carry right to be converted into ordinary shares at pre-set dates or times

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27
Q

Ordinary shares

A

Bulk share of capital and confer an ownership of stake in it

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28
Q

Where will additional classes of shares be written

A

Articles of Association

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29
Q

What are types of ordinary share

3

A

Non-voting ordinary shares
Deferred ordinary shares
Alphabet shares

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30
Q

What are the risks of shares

7

A

Equity Capital risk
Share divdend volatility
Currency risk
Liquidity risk
Counterparty risk
Fund managers and insurance companies
Regulatory risk

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31
Q

What does private equity do

A

Involves providing medium-long term finance in return for an equity stake in potentially high growth unequoted companies

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32
Q

Definition of private equity

A

Private equity is regarded as an asset class in its own right and involves either taking a stake in or acquiring companies that are not publicly traded on a stock exchange.

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33
Q

How do private equity firms work

A

selling its shares back to the management;
selling the shares to another investor, such as another private equity firm;
a trade sale, which is the sale of company shares to another company; or
the company achieving a stock market listing.

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34
Q

How can u invest in private equity

A

Private equity funds
Listed private equity investment companies

35
Q

What are Private equity funds

A

Seek to raise money for investment
Look to retain investment between 3-7 years, many are structured for 10 years
Funds invest money and aim to return investors original money + Interest

36
Q

What are listed private equity investment companies

A

Two types:
Those who directly invest in unlisted companies
Those who invest in funds that invest in unlisted companies

37
Q

Earnings per share

A

Profit attributable to ordinarly shareholders/ number of ordinary shares in issue

38
Q

Dividend yield

A

(Dividend per share / Current share price) * 100

39
Q

Dividend per share

A

(Dividend/ Number of ordinary share in issue) * 100

40
Q

Dividend cover (Individual basis)

A

Earnings per share/ Dividend per share

41
Q

Dividend yield (Total profit Basis)

Formulae

A

(Profit attributable to ordinary shareholders / Dividend paid to ordinary shareholders)

42
Q

Price Earnings ratio

Definition

A

Relationship between share price and EPS, measure of how investors value earnings of company

43
Q

PE ratio formulae

A

Current market price of share / Earnings per share

44
Q

Dividend cover

Definition

A

How many times dividend could be paid out of available current earnings

45
Q

Dividend yield

Definition

A

Measures the dividend as a percentage return on current share price

46
Q

Net asset value

Definition

A

Value of the tangible assets that are attributable to ordinary shareholders
Shareholders funds or shareholder interest in company - capital provided by shareholders + profit company has retained instead of paying dividends

47
Q

Net Asset value formulae

A

Net assets attributable to ordinary shareholders/ Number of ordinary shares in issue

48
Q

What is the nominal value of preference shares

A

£1

49
Q

When is NAV less useful

A

For companies valued on earnings potential, where shares are traded above NAV

50
Q

When is NAV useful

A

if takeover bid is made - shareholders can compare bid price to realistic NAV

51
Q

Limitiations of investment ratios

A

Different calculations
Trends over years (inflation misleading figures)
Misleading trends if management changes

52
Q

FTSE Russell

A

Owned by LSEG - providing wide range of stock market indicices.

53
Q

How many countries does FTSE russell cover

A

80

54
Q

What is the free-float adjustment used for

A

To help with situations where only a limited quantity of stock is available for public trading because directors own large percentage of share

55
Q

What are the main FTSE indicices

A

FTSE ALL-share index - covers ftse 100, 250 and ftse small cap - 98% of LSEG
FTSE 100 - top 100 companies in UK, membership in march, june, september, december
FTSE 250 - next 250 largest companies- 15% of market cap
FTSE 350 - combination of ftse 100, 250. 96% of uk market

56
Q

FTSE Small Cap

A

Comapnies in FTSE all-share that are too small to qualify for top 350

57
Q

FTSE fledgling

A

Companies listed on LSEG which are eligible for FTSE uk series but too small for ftse all share

58
Q

FTSE Aim index series

A

For young and growing companies

59
Q

What is the eligibility requirement for indicides

A

Every stock has to be liquid and readily tradeable

60
Q

Overseas indices

A

US - Dow Jones, snp 500, NasDAQ
Japan - Nikkei 225
Tokyo stock exchange index
German - DAX 40
HK - Hang seng index

World MSCI World index
FTSE ALL-world index

61
Q

Limitation of indices

A

If index only reflects changes in capital values it ignores reinvested dividend income (long term performance)

FTSE All-share index include a total return index which is based on net reinvested income

62
Q

What is stamp duty land tax on second properties

A

An additional 3% on top of SDLT

63
Q

Rental yields

A

Gross rent/market price

64
Q

General management expenses

A

((Gross rent - expenses)/market price + cost of buying))

65
Q

What are the buyer or tenant responsible for in terms of SDLT

A

Completing forms
Submitting to HMRC
Paying tax within 14 days of transaction

66
Q

What is the threshold for 0 SDLT

A

£250,000

67
Q

At what price of home is 5% SDLT paid

A

£250,001 - £925,000

68
Q

At what price of home is 10% SDLT paid

A

£925,001 - £1,500,000

69
Q

At what price of home is 12% SDLT paid

A

> £1,500,000

70
Q

What is the threshold for first time buyers on SDLT

A

£425,000

71
Q

When is there no relief for SDLT first time buyers

A

> £625,000

72
Q

What happens if a company or collective investment scheme purchase residential dwellings

A

SDLT CHARGED AT 15% (UNLESS FOR RENT, WHERE IT IS CHARGED AT CURRENT RATE AND BANDS)

73
Q

How much is the supplement where a property is bought by a non-uk resident

A

2%

74
Q

Commercial property SDLT rate

A

<£150,000 - 0
£150,001 - £250,000 - 2
<£250,000 - 5

75
Q

How is SDLT charged under lease rent

A

On net present value of rent payable under lease

Multiply annual rent by term of lease
Apply discount (inflation)
Deducting threshold figure

76
Q

Scotland - land and building transaction tax

A

<£145,000 - 0
£145,001 - £250,000 - 2
£250,001 - £325,000 - 5
£325,001 - £750,000 - 10
£750,000 + - 12

77
Q

What is the rate of LBTT for second properties

A

An additional 6%

78
Q

First time buyers scotland threshold LBTT

A

£175,000

79
Q

Wales threshold for LTT (land transaction tax)

A

Up to £225,000 - 0

80
Q

Qualyfing rules for exemption from income tax (rent a room relief)

A

Gross rent <£7,500
Individual occupies same time as tenant
Only one exempt amount per residence
If rent <7,5000 any excess u can either pay tax or be taxed on gross rent with no rent a room relief

81
Q

What is the property income allowance

A

Up to £1,000 - property income is exempt from tax

82
Q

When does property income allowance not take place

A

Rent a room relief is givem or where allowable expenses are deducted

83
Q
A

R02 - 2023 (11 decks)

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