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Asset Classes Flashcards

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SIE Exam flashcards
1
Q

what is the difference between authorised share capital vs issued share capital vs free float

A

authorised share capital: max # of shares a company may issue

issued share capital: total shares in issue

free float: shares in hands of the public

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2
Q

what is the difference between ordinary and preference shares (qs on what they mean)

A 
Ordinary: variable dividends
voting capabilities
features:
-A share/B share (non voting)
-redeemable (company can call)
-partly paid 
Preferred: priority upon liquidation
fixed dividends
voting no as default
features:
-cumulative (unpaid dividend rolled)
-participating (can participate in companies profits)
-convertible (option to change from pref to ordinary)
-redeemable
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3
Q

do adrs have to pay stamp duty and what happens if there is a rights issue

A

bank who creates adr has to pay creation fee (equivalent of stamp suty)

if rights issue don’t get all benefits, do normally get cash value

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4
Q

what is a warrant

A

right to subscribe for new shares from a company at a fixed price on a future date (only companies can issue cause new share),

normally issued as a sweetener with corp debt,

can be detachable or non-detachable from the bond

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5
Q

what is the formula for the conversion premium for a warrant

A

conversion premium = warrant price + exercise price - current share price

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6
Q

which are the price weighted indices

A

dow jones

nikkei

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7
Q

Which of the following is true about preference shares?

A
They always carry the right to vote

B
They carry the right to vote when the company fails to pay a dividend

C
They are paid before debentures in the event of a liquidation

D
They rank below ordinary shares in the event of a liquidation

A

they carry the right to vote when the company fails to pay a dividend,

Preference shares carry voting rights in the following circumstances:

  1. Preference shares which carry a fixed percentage of a notional value but fail to pay a dividend
  2. Zero-coupon preference shares
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8
Q

Which ONE of the following is the BEST description of the return on a preference share:

A
Usually fixed - provided that the dividend is declared by the directors

B
Fixed - as the dividend is a fixed percentage of the nominal value

C
Variable - as the directors decide the amount of dividend to be paid

D
Variable - as the dividend is paid after the ordinary dividend

A

Usually fixed - provided that the dividend is declared by the directors

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9
Q

what is a bearer security

A

an anonymous, freely traded security,

A £5 note and a eurobond are examples of a bearer security. Because no register exists for bearer shares, the owner has complete anonymity. For a bearer document, proof of legal title is achieved by having physical possession of the security. This is in contrast to registered securities, where legal title is proved by the security being registered in the owner’s name.

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10
Q

when do preference shares carry the right to vote

A

when the company fails to pay a dividend

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11
Q

do preference shareholders always get their dividend paid

A

as long as the company feels they have sufficient profits

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12
Q

what is money markets

A

debt instruments < 1 year

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13
Q

what are some other names for nominal value of a bond

A

par value,
redemption value,
capital value

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14
Q

for index linked bonds, is the redemption value linked to inflation

A

yes

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15
Q

what is the purpose of a strip

A

gives investors ability to meet liabilities without reinvestment risk

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16
Q

GEMMS

A

gilt-edged market makers

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17
Q

who can strip Gilts

A

GEMMS (gilt-edged market makers)
HM Treasury
Bank of England

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18
Q

how many strips can a five-year Gilt be made into

A

11,

number of coupons plus principal (semi-annual)

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19
Q

which government bonds are bearer

A

France, Germany and sometimes Japan

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20
Q

which governments pay annual coupons

A

France, Germany

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21
Q

which bonds are settled T+1

A

UK (Gilts), USA (T-bonds) and Japan (JGBs)

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22
Q

what are secured corporate bonds called and what two types are there

A

debentures,

fixed charge over assets (names asset),
floating charge over assets (pool of assets)

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23
Q

what are unsecured corporate bonds called

A

loan stock

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24
Q

what is the difference between asset-backed securities and covered bonds

A

bonds secured by a pool of assets:

covered bond: pool owned by originator

asset backed securities: pool owned by a special purpose vehicle

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25
Q

what is the trust deed

A

required when trustees appointed, empowers the trustee alone to act on behalf of the debenture holders.

Ensures organised action and parity of treatment through a single entity

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26
Q

what are the four different types of trustees

A

note trustee: protect bondholders at same time also advise issuing company
security trustee: debenture, take legal ownership of assets like land to protect bondholders
share trustee: in asset backed vehicle, trustees that have ownership to make sure off balance sheet
successor trustee: due to conflicts of interest someone trustee might have to resign, have to appoint someone else

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27
Q

what is an exchangeable bond

A

converts into stock of another, usually subsidiary of the issuer. Uses existing shares

28
Q

are convertible bonds dilutive

A

yes

29
Q

what are guaranteed bonds

A

credit enhancement based on credit rating of third party

30
Q

what is a floating rate note

A

coupon floats in line with market interest rates,
trade near par,
capital protection

31
Q

what are PIK notes

A

payment in kind notes

generally subordinated debt,
zero coupon bonds that are issued at substantial discount to face value

32
Q

what is a eurobond

A

bond denominated in a currency that is different form the market on which it is issued,

issued in bearer form

33
Q

what are some dealing and settlement features of eurobonds

A

typically OTC but some exchange traded,
regulated by International Capital Markets Association (ICMA):
-trades reported and managed through TRAX
-T+2
Gross annual coupon
Day-count convention 30/360

34
Q

japanese superlongs have a life of?

A

20 years

35
Q

Which one of the following is not an issuer of mortgage-backed securities in the US?
AGovernment Home Mortgage Corporation BGovernment National Mortgage Association CFederal National Mortgage Association DFederal Home Loan Mortgage Corporation

A

Government Home Mortgage Corporation

36
Q

which carries a greater degree of risk, mezzanine debt or subordinated debt

A

mezzanine debt

37
Q

With which of the following are payment in kind notes issued?
ASenior debt BSubordinated debt CMezzanine debt DAgency bonds

A

Mezzanine debt

38
Q

medium term US notes generally have a life of what?

A

two - 10 years,

bills =< two years, notes two - 10 years, bonds =>10 years

39
Q

what is the equation for the flat yield

A

flat yield = gross annual coupon / market price x 100%

40
Q

what is gross redemption yield and what is the equation

A

annual total return for bond held to maturity (YTM),

flat yield +/- annualised total return ((profit / years to maturity) / market price * 100%)

annualised total return profit will depend on whether market price below or above 100 (2.3 3/11)

41
Q

what is net redemption yield

A

considers the impact of tax on the YTM,

applies income tax to coupon

42
Q

cum coupon period

ex coupon period

A

with coupon

without coupon

43
Q

when is the dirty price lower than the clean price

A

immediately after the ex coupon date, when buyer not see few days of interest cause they don’t get coupon (2.3 5/11)

44
Q

simple interest

A

don’t worry about compounding of interest,

just total coupon paid

45
Q

what is the formula for the conversion premium

A

(convertible bond price / conversion terms (how many shares per bond)) - current share price

46
Q

bonds with higher modified duration will be more _____

A

volatile

47
Q

what is a t bill

A

short-term unsecured debt
1-12 months,
zero-coupon
-issued at discount

48
Q

what is the minimum denomination t-bill for trading in UK

A

£25,000

49
Q

what are t bills for companies called

A

commercial paper,

unsecured, short term debt

50
Q

what is the repo rate

A

interest paid for borrowing money

51
Q

what is the Interest Rate Parity equation

A

F/S = (1+rvar)/(1+rbase)

F = (1+rvar)/(1+rbase)*spot,

need to deannualise if asked for 6 month. Base currency denominator

52
Q

what are the two types of property funds

A

real estate investment trusts

  • companies, exchange traded, shares
  • do not pay corporation tax in UK

property open ended funds

  • NAV pricing
  • may resort to redemption moratoria - redemptions likely to be infrequent
53
Q

what does property provide

A

diversification,

real asset - inflation protection

54
Q

what does open ended mean

A

can open as many shares as want, value is NAV, not subject to market sentiment

55
Q

what is a collective investment

A

investors pool together assets and have these professionally managed by independent manager

56
Q

what are the features of a unit trust

A

legally a trust,
require a trust deed (terms),
open ended fund,
trustee and fund manager are required to be authorised,
trustee: supervision, make sure fund manager adhering to regulation, legal owner of assets in fund
fund manager: unit trust manager, investment manager,
no secondary market,
portfolio valued once a day, NAV

57
Q

what are the features of OEIC

A

ICVC, legally a company,
instrument of incorporation (terms),
authorised corporate director (ACD): same role as FM,
depositary: same role as trustee, keeps eye on ACD, owns assets,
open ended also,
investor buys shares

58
Q

what are the features of investment trust companies (ITCs)

A

company not a trust,
shares trade on secondary market,
closed-ended,
geared -> borrow to invest

59
Q

what are features of ETFs

A

incorporated as an ICVS, but tradable on secondary markets,

60
Q

what is an ETC

A

exchange-traded commodities (ETCs)

61
Q

what are the features of unregulated collective investment schemes (UCIS)

A

not permitted to be marketed to retail investors,
no restrictions on investments,
often based offshore -> tax advantages, regulatory advantages

62
Q

what is gearing

A

leverage

63
Q

what is a UCIS

A

unregulated collective investment schemes

64
Q

what is an example of a non-mainstream pooled investment

A

unregulated collective investment. scheme (UCIS)

65
Q

what are structured products

A

combining two or more individual financial instrument, tailored to offer specific risk reward profiles

66
Q

what are the two broad categories of structured products

A

structured deposit: returns on deposit linked to performance of another asset
structured investments:
-principal protected (1000 zero coupon and call option)
-return enhanced
-buffer-zone

67
Q

what would be a structured product to get exposure to get capital protection and exposure to ftse 100 for £1000

A

1 year zero coupon bond with £1000 nominal value,
pay £950
£50 in long call option on ftse 100

Securities (9 decks)

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