Chapter 1 Asset Classes

Question 1

Do bonds suffer capital gains tax?

Answer 1

No

Question 2

Do Eurobonds pay their coupons gross?

Answer 2

Yes

This is due to them being issued internationally, causing a lack of certainty about the tax regime of the country in which they trade.

Question 3

Are Eurobonds issued in bearer form?

Answer 3

Yes to assist in this international trading, they are bearer document removing the need for a central registrar to keep track of their owners

Question 4

Is the FTSE 100 the most liquid UK indices?

Answer 4

Yes FTSE 100 is made up of high profile (blue chip) companies that are the biggest and most liquid.

Question 5

Whats another name for the FTSE 250?

Answer 5

The FTSE 250 is often called the FTSE mid-cap, and contains the next 250 companies after FTSE 100

Question 6

What is the FTSE 350?

Answer 6

The FTSE 350 is the FTSE 100 and 250 combined.

Question 7

What is the FTSE ALL Share?

Answer 7

The FTSE All Share adds to the FTSE 350 with the FTSE small-cap.

Question 8

How many busines days after trade is the settlement time for UK equity and UK Corporate bonds?

Answer 8

They settle 3 business days after trade.

Rights issues still have a settlement time of 1 business day.

Question 9

How many busines days after trade is the settlement time for UK Gilts?

Answer 9

UK Gilt trades settle after 1 business day

Question 10

With a Rights issue what happens to the theoretical ex-rights price?

Answer 10

issuing shares at a discount will dilute the share price on the markets, giving a theoretical ex-rights price lower than the current market price.

Question 11

What is a cap rate used for?

Answer 11

A Cap Rate is used to value a commercial property. It is estimated from comparable properties that have been sold recently.

Question 12

What Is a Zero-Coupon Bond?

Answer 12

A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

Question 13

What is LIBOR LIBID and limean?

Answer 13

The LIBOR is the rate at which funds are sold in the market, while the LIBID is the rate at which the funds are purchased in the market. LIMEAN represents the midmarket value of the two rates.

Question 14

A eurobond is issued through international placing, therfore is issued in one country only. True or False

Answer 14

FALSE it’s issued in more than one country at the same time.

Question 15

A Eurobond is issued in a eurocurrency. Is a eurocurrency necessarily the Euro or necessarily a European currency?

Answer 15

A eurocurrency can be any currency held on deposit in a country from where it does not originate, for example Sterling held in the US or US Dollars held in Japan.

Question 16

Do you pay stamp duty when selling shares?

Answer 16

No only when buying.

Question 17

What Is Running Yield?

Answer 17

Running yield is the annual income on an investment divided by its current market value

Question 18

What are three other names for Running yield?

Answer 18

current return, current yield, or yield to maturity (YTM) when used in reference to bonds.

Question 19

According to market convention, what is the official classification of gilt maturities into Shorts, Mediums and Longs?

Answer 19

Less than 7 yrs, 7 -15 yrs, 15 yrs +

The Debt Management Office (DMO) sets out this official classification.
If you chose 1 - 5 yrs, 6 -15 yrs, 15 yrs +, you were thinking of the classification according to the London Stock Exchange where these gilts can be traded. Although an accept definition, it is not the official classification.

Question 20

What are the correct components of enterprise value (EV)?

Answer 20

EV = Market capitalisation + Market value of preferred shares + Market value of debt - Cash

EV is often considered as a cost of taking over the company. It would require buying out all the stakeholders, such as the owners and creditors. However, the new owner would inherit the cash position of the company, enabling them to pay off some of the debt. That is why the cash is subtracted from the value of the securities.

Question 21

Do NS&I Guaranteed Growth Bonds offer tax free returns?

Answer 21

No Guaranteed growth bonds pay interest gross, but taxable.

Question 22

Do NS*I Fixed Interest Savings Certificates offer tax free returns?

Answer 22

Yes as do Junior ISA’s, premium bonds and direct ISAs

Question 23

Is Interest received net of the basic rate for peer to peer lending?

Answer 23

No Interest is received gross and must be declared in full to the HMRC. Depositors have no recourse to the FSCS for losses incurred.

Question 24

What is the Capital Gains Tax on Coporate bonds?

Answer 24

There isn’t any unless they were convertible bonds.