Chapter 2

Question 1

What are the 4 costs involved in buying and selling shares

Answer 1

• commission;
• stamp duty;
• stamp duty reserve tax (SDRT); and
• the Panel on Takeovers and Mergers (PTM) levy

Question 2

What is the difference between Stamp Duty and Stamp Duty Reserve Tax (SDRT)

Answer 2

Stamp duty is paid when shares are transferred through paper based application over £1000

SDRT is paid when shares are bought through CREST - no min applies

Question 3

When wouldn’t you pay stamp duty or SDRT?

Answer 3

Companies quoted through AIM

Question 4

What is the rate of tax of SD & SDRT?

Answer 4

0.5% of the purchase price

Question 5

SD & SDRT are both paid by the purchaser and not the seller, how are these rounded up?

Answer 5

Stamp Duty - next multiple of £5
SDRT - nearest penny

Question 6

What is the PMT Levy?

Answer 6

A flat rate charge of £1 for £10,000 and more

The panel is the regulatory body that oversees all takeovers and mergers

Question 7

What are the two main types of shares?

Answer 7

Ordinary & Preference

Question 8

company

What 3 main areas differentiate the type of shares?

Answer 8

1. receipt of dividends;
2. control of the company; and
3. return of capital if the company is liquidated

Question 9

Preference stock to raise money without sacrificing control

What are some of the features of preference shares?

Answer 9

• pay a fixed rate of dividend half-yearly only if there are after-tax profits
• priority over dividends payments than ordinary
• generally no voting rights
• rank ahead over ordinary but after loan capital and other creditors
• low security higher yield (higher risk)

https://www.youtube.com/watch?v=aG8F1WU51PY

Question 10

Name the 5 different types of preference shares?

Answer 10

1. Cumulative preference shares
2. Non-cumulative preference shares
3. Participating preference shares
4. Redeemable preference shares
5. Convertible preference shares

Question 11

What is the difference between Cumulative and Non-Cumulative shares

Answer 11

Dividend payments are rolled over until the company pays out
Non-C there’s a chance they may never receive a dividend payment

Question 12

Features of ordinary shareholders

Answer 12

• last to be paid out if company liquidated
• right to vote
• higher rate of return as higher risk

Question 13

What is the dividend allowance?

Answer 13

No tax on 1st £1000

Question 14

What is the tax rate for dividends, basic, higher and additional?

Answer 14

Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%

Question 15

What are the other types of ordinary shares?

Answer 15

• Non-voting
  ordinary shares
  -Deferred ordinary
  shares
• Alphabet shares

Question 16

Name the 7 types of risk associated with shares?

Answer 16

• Equity capital risks
• Share dividend volatility
• Currency risk
• Liquidity risk
• Counterparty risk
• Fund managers and insurance companies
• Regulatory risk

Risk to capital, due to market forces.
Dividends are uncertain.
Exchange rate movements, if dealing in overseas equities.
The ability to sell at a given time.
The risk that a counterparty will not pay what it is obliged to.
The demise of Equitable Life suggest that advisers cannot completely ignore
this risk.
Regulatory risk is therefore greater in developing or emerging
markets

Question 17

Casey is the sole director of CAS Training Ltd. Her remuneration from CAS involves her taking a small salary topped up with dividends from the business and as such, she has fully utilised her dividend allowance (DA). She is a basic rate taxpayer.
She also owns shares in British Gas and has received a dividend of £100 from them.

Answer 17

As this is in excess of the dividend allowance (DA), Casey will need to pay tax on the dividend. As a basic
rate taxpayer, this will generate a 8.75% liability i.e. £8.75 that will be declared, and paid, via selfassessment.

Question 18

Tony and Phil are registered civil partners. Tony is a higher rate taxpayer and Phil an additional rate taxpayer. Both have received significant dividends from their portfolio of shares that have both fully utilised their dividend allowances.
In addition, they have both recently received £1,000 dividend payments from their shares in ABC Plc
and have enquired what their respective tax liabilities will be.

Answer 18

Tony, as a higher rate taxpayer will have a 33.75% liability to be paid through self-assessment so £1,000 x 33.75% = £337.5
Phil, as an additional rate taxpayer will have a 39.35% liability to be paid through self-assessment so £1,000
x 39.35% = £393.5.

Question 19

David, Jeff and Alice all have preference shares.

David is entitled to a fixed dividend that if not paid must be made up in future years.
Jeff is entitled to both a fixed dividend plus a share in the company’s profits.
Alice is entitled to a fixed dividend which is lost if it is not paid by the company within a financial year.
What types of preference shares do these investors have?

Answer 19

David - Cumulative
Jeff - Participating
Alice - Non Cumulative

Question 20

Having a diversified portfolio reduces which risk?

i.e. systematic, market etc

Answer 20

unsystematic

Question 21

How should you diversify your portfolio to reduce risk?

Answer 21

Choose different shares.
Choose those shares from different sectors.
Have some overseas shares.

Holding two companies’ shares halves the risk of holding one. Holding 20 significantly reduces it.

Don’t buy all the shares in banks or petroleum companies. Spread them around.

The UK might fall into recession when, for example, Japan keeps growing. By
investing globally, you reduce the risk through diversification.

Question 22

What is it called when investors take a stake in a company or acquire companies that are not listed on the Stock Exchange.

Answer 22

Private Equity (own asset class)

Question 23

dragons den

A private equity firm is looking for its investment to be rewarded by the company’s success
and will generally seek to realise its capital gain through an ‘exit’, which may involve what 4 things?

Answer 23

• 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.

Question 24

What type of investment vehicles are used to invest in private equity?

Answer 24

private equity funds
listed private equity investment companies enterprise investment scheme (EIS),
a seed enterprise investment scheme (SEIS) or
a venture capital trust (VCT).

Question 25

What is the Earnings Per Share formula?

Answer 25

Profit aftertax and preference dividends
÷
Number of ordinary shares in issue

Question 26

What does the EPS show?

Answer 26

Shows the trend in a company’s profitability
- A widely-used statistic in company performance.
* All companies list their EPS.
* Shows the amount per share, in pence, that the
company has earned during the year.

Activity: Research EPS for M&S & Tesco which is higher

Question 27

What is the dividend yield formula?

Answer 27

Dividend per share
÷
Current share price

x100

Question 28

If a company pays a dividend per share of 16.5p and the share price is 292p, what would the dividend yield be?

Answer 28

16.5 ÷ 292 × 100 = 5.65 %

Question 29

What are the two formulas for dividend cover?

Answer 29

On an individual basis as:
Earnings per share
÷
Dividend per share

On a total profit basis as:
Profit attributable to ordinary shareholders
÷
Dividends paid to ordinary shareholders

Again, the profit is that which is left after tax, minority interests and preference dividends
have all been satisfied.

Question 30

What does the dividend cover show?

Answer 30

Shows how many times the dividend could be paid
out of available current earnings
* The higher the figure the better.
* A high figure, e.g. 10 x, shows that profits are
being retained rather than shared.
* Two ways of calculating, dividend cover per share
(top calc.) or per company (the lower calc.)

Question 31

If a company has EPS of 58p and the dividend per share was 26p, what would the dividend cover be?

Answer 31

The dividend cover would be:
Dividend cover = 58
26 = 2.23 times

Question 32

CII

What is a feature of cryptocurrencies?

a.
There are fewer security risks than with traditional currencies.

b.
They are regulated under the Financial Services and Markets Act 2000.

c.
Transactions are anonymous.

d.
They are influenced by governments and central banks.

Answer 32

C

Question 33

CII

Jorge has enquired about the property income allowance. You advise him:

a.
he can claim the property income allowance as well as rent-a-room relief.

b.
if the property income is less than £1,000 per annum after expenses have been deducted, it will be exempt from income tax and will not have to be declared on his tax return.

c.
where the income from his property is more than £1,000 per annum, he cannot use the property income allowance.

d.
if the property income is less than £1,000 per annum before expenses have been deducted, it will be exempt from income tax and will not have to be declared on his tax return.

Answer 33

B

Question 34

CII

Portfolio X consists of shares listed on the FTSE 100 and portfolio Y consists of unlisted shares.

What type of risk is likely to be significantly higher for portfolio Y when compared to portfolio X?

a.
Event risk.

b.
Liquidity risk.

c.
Currency risk.

d.
Inflation risk.

Answer 34

B

Question 35

When is the Price
earnings ratio P/E used?

Answer 35

Used as a comparison between companies in the
same sector
* Based on the relationship between share price
and earnings.
* Meaningless on its own.
* The ratio is shown in the title P/E
(Price* Earnings).
* Generally, the higher the ratio, the more the
shares are in demand, and the more the earnings
are expected to grow.

Question 36

What does the NAV (Net Asset Value) show?
What is the formula?

Answer 36

Shows the amount available to shareholders if the
company were to close down, sell all its assets and
distribute the balance

• The value of the tangible assets attributable to
  ordinary shareholders.
• Often used to price collective investment schemes
  and show the minimum value that the shares
  would be worth.

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

Question 37

d it

Xanex Ltd. has 2 million ordinary shares in issue, a current share price of £2.00 and paid a
gross dividend of £1.50 per share in the last accounting year.
Net profits for the year were £20 million.
Which of the following ratio would you be able to calculate?
A) Earnings per share
B) Net asset ratio
C) P/E ratio
D) Dividend yield
E) Dividend cover

Answer 37

all the ratios above except net asset value

Question 38

David wants to review the investment performance of Japanese shares.
Which of the following indices should he look at?
A) CAC 40 and the Hang Seng.
B) Hang Seng and the NASDAQ.
C) Nikkei and the TOPIX.
D) NIKKEI 225 and the Dow Jones.

Answer 38

C

Question 39

What are the different types of property risk and explain these?

Answer 39

Liquidity risk
- The property market is slow at best.
- It can take months to find a buyer and, even then, it can take months to complete a deal.
- Ancillary fees also have a bearing. Stamp Duty, solicitors’ fees, moving costs, etc. all add up.
- Can’t ‘part sell’, it’s all or nothing.
Management Risk
- Buy-to-let is a business.
- Many ‘would-be’ landlords lack the financial acumen to deal with the paperwork.
- Letting agencies are expensive, with their costs eroding returns.
Void risk
- Finding a tenant is not always easy.
- Finding a good one is even harder.
- Mortgage costs must still be met, even if no rental income is received.
- A tenant failing to pay is as troublesome as not having a tenant in the first place.

Question 40

Who is responsible for completing the following tasks:
* completing the relevant SDLT forms;
* submitting them to HMRC; and
* paying the tax within 14 days of the date of the transaction.

Answer 40

Buyer

they are often completed by solicitor dealing with the transaction

Question 41

SDLT for first-time buyers?

Answer 41

no tax on 1st £425,000

Question 42

When do SDLT for first time buyers do not apply?

Answer 42

When total price paid is more than £625,000

Question 43

Which index is for the socially responsible?

Answer 43

FTSE4Good

Question 44

What are the main 4 FSTE indexes?

Answer 44

FTSE All-Share index
FTSE 100 Index
FTSE 250 Index
FTSE 350 Index

Question 45

David wants to review the investment performance of Japanese shares.
Which of the following indices should he look at?
A) CAC 40 and the Hang Seng.
B) Hang Seng and the NASDAQ.
C) Nikkei and the TOPIX.
D) NIKKEI 225 and the Dow Jones.

Answer 45

C

Question 46

Hang Seng Index relates to Hong Kong’s index?
True or False

Answer 46

True

Question 47

What are the main indexes for USA

Answer 47

The Dow Jones
NASDAQ
Standard & Poor’s (S&P) 500

Question 48

France is index is the DAX 40
True or False?

Answer 48

False, it’s Germany’s
France is CAC 40

Question 49

Indices are widely used for comparing the performance of actual portfolios of
investments and are used as benchmarks to beat.
What do indices not take into account?

Answer 49

account dealing costs, tax, management costs

Question 50

CII Self Test Questions

What two factors tend to influence the price movements of an individual share?

Answer 50

• Future expectations; and
• historic and current knowledge of a company’s performance.

Question 51

CII Self Test Questions

Is a rise in interest rates likely to raise or depress the share price of building companies?

Answer 51

A rise in interest rates is likely to depress builders’ share prices as higher mortgage costs could deter house buyers.

Question 52

CII Self Test Questions

To what extent is a preference share different from a corporate bond?

Answer 52

Preference shares are similar to corporate bonds in that they pay a fixed income.
However, preference share dividends are taxed as dividend income and not at the
savings rate payable on the receipt of interest. Dividends are paid if there are
sufficient after-tax profits whereas the interest on loan stock must be paid.

Question 53

CII Self Test Questions

Which type of share ranks lowest if a company goes into liquidation?

Answer 53

Ordinary shareholders are only entitled to share the residual value of a company’s
assets after all debts are discharged and other shareholders have received their
entitlements. They therefore rank as the lowest type of share.

Question 54

CII Self Test Questions

A client is considering investing in listed private equity companies. What are the risks
associated with this type of investment?

Answer 54

Whilst private equity can deliver high returns, there is a high risk of losses, as some of the companies in which a fund invests will fail and others will not grow quickly. They can also carry high leverage and are vulnerable to a domestic downturn or recession.
Listed private equity stocks are less liquid than listed securities. This can make realising an investment difficult and it also makes the share prices more volatile, as trading volumes can be very low.

Question 55

CII Self Test Questions

What is a price-earnings (P/E) ratio and what does it tell an investor about the
potential for growth in the share price?

Answer 55

The P/E ratio compares the company’s share price with its earnings per share (EPS).
A high P/E ratio usually indicates that investors are optimistic about the future earnings growth of the company. However, a P/E ratio does not indicate whether a share price will rise or fall.

Question 56

CII Self Test Questions

Why might it be appropriate to include property within an investment portfolio?

Answer 56

A key reason would be to obtain additional diversification, especially from equity investments. Property values tend to follow business profitability, in very general terms, and are therefore less volatile than stock markets.
Where property is let on attractive terms to good quality tenants, it has some of the characteristics of fixedinterest securities. Yet, because property is asset backed, it can also provide longterm protection against inflation.

Question 57

CII Self Test Questions

What are the disadvantages of investing in a work of art?

Answer 57

• Pieces of artwork usually do not generate any form of income.
• They often cost money to keep, and may incur charges in the form of insurance
  premiums, specialist storage charges, security costs or maintenance.
• Demand is driven by the tastes of collectors, which can change.
• Authenticity can be difficult to prove.
• There are high costs associated with buying and selling.
• It can be difficult to diversify.
• Specialist knowledge is needed to buy successfully.

Question 58

CII Self Test Questions

What are the two broad classifications for commodities?

Answer 58

• Hard commodities, which are the products of mining and other extractive
  processes – they include metals, crude oil and natural gas; and
• soft commodities, which are typically grown – they include coffee, cocoa, sugar,
  corn, wheat and livestock.

Question 59

Headline gross rental yield

A property is advertised at £175,000, with potential rental income of £900 per month
Work out the rental yield

Answer 59

Gross Rent
÷
Market Value

1. Work out yearly rental 900 x12
2. Divide total by market price
3. Times this figure by 100

= 6.17%

Question 60

The gross rental yield does not take into account…

Answer 60

associated annualcosts such as
maintenance,
management costs,
insurance
the new property allowance

Question 61

If a first time buyer purchases a house for £500,000 what percentage will they have to pay over £425,000 threshold?

Answer 61

Slice of property value

Rate for first-time buyers
Up to £425,000 0%
Over £425,000 and up to £625,000 5%

Question 62

Gerald owns a retail shop of 125 square metres that he previously rented out for £2,000 per month,
providing a 6% annual yield. Earlier this year he purchased the shop next door, which he has combined with the existing property to create a new retail space of 225 square metres.
The purchase and improvements cost £250,000. How much rent must he charge to achieve the same yield?
A. £3,250 per month.
B. £2,800 per month.
C. £3,600 per month.
D. £3,000 per month.

Answer 62

A
The annual rental income previously was £2,000 x 12 = £24,000 .If the yield was 6%, the cost of the
original property was £24,000 / 0.06 =£400,000. Therefore the total cost of the combined retail space
is £650,000.
To achieve the same yield, the rent required is £650,000 x 6% = £39,000 per annum or £ 3,250 per
month.
The information about the size of the property was a red-herring, as the question was not asking you to
express it as ‘£ per square metre’.

Question 63

A limited company has 5,000 ordinary shareholders. In the current financial year, the company made
profits of £1,090,000. The company has just declared a dividend of £84 per ordinary share and a total
dividend of £190,000 is due to preference shareholders. What is the dividend cover?
A. 2.60.
B. 2.14.
C. 1.76.
D. 1.46.

Answer 63

B
Dividend cover is calculated by dividing the profits attributed to ordinary shareholders by the dividend
payments to ordinary shareholders. The dividend payments are £84 x 5,000 = £420,000.
Profit attributed to ordinary shareholders is £1,090,000 - £190,000 (the dividend due to preference
shareholders) = £900,000
The dividend cover is therefore: £900,000 -f £420,000 = 2.14
The company could pay the dividend distributed 2.14 times from the profits available for distribution.

Question 64

A limited company has purchased a residential property in Kensington for £1,650,000. What would the Stamp Duty Land Tax be on this transaction?

A. £65,000.
B. £72,000.
C. £111,750.
D. £247,500.

Answer 64

D
£1,650,000 x 15% = £247,500

Question 65

When considering the price of a conventional GILT…
A. you will always receive £100 per gilt at redemption.
B. a price of £109.50 is said to be below par value.
C. a purchaser of a gilt will usually pay a lower price than the seller will receive.
D. a purchase of a bond between coupon payment dates will be transacted at the clean price.

Answer 65

A
All GILTS pay back the £100 nominal or par value at maturity and costs are inevitably involved in the
transaction, meaning that the seller will not get all of the value of the sale.
Anything above £100 is trading over par, not under par. Most transactions occur at the dirty price, taking
into account the interest adjustment.

Question 66

Tabatha, who usually invests in equities, is looking to diversify her portfolio by investing in commercial
property. You should advise her that…
A. any transaction is likely to be slower, and more complex, than she is used to.
B. she is unlikely to pay Stamp Duty Land Tax.
C. the income yields will be higher from more expensive properties.
D. the commercial property sector is more liquid than the equity markets.

Answer 66

A

Question 67

Ibrahim is looking to invest in commodities to further diversify his investment portfolio. If he proceeds…
A. he will only be able to trade directly in hard commodities.
B. the expected returns would be higher than any normal asset class.
C. he could invest in a commodities OEIC or Unit Trust.
D. commodities should diversify his equities well, as they are negatively correlated to them and
move in different cycles.

Answer 67

C & D
In theory, anyone can hold both direct and indirect commodities but in reality, it is impractical, with
storage of the commodities being the biggest issue. So, many investors invest via funds.
Commodities have performed well and do work as a perfect foil against equities, but it is impossible to
say that they will, or should, outperform other ‘normal’ asset classes.

Question 68

Peter, a higher rate taxpayer, has £90,000 of savings in his only building society account. Karen, an
additional rate taxpayer, has £101,000 in her only bank deposit account. Both accounts provide the same
interest rate. In comparing the two accounts you would note…
A. Karen would have a higher level of protection from the FSCS.
B. Peter’s account must have exit penalties, as building societies always pay higher returns.
C. both accounts would have the same level of tax deducted automatically at source.
D. Karen’s account is less likely to provide voting rights.
E. the maximum Peter can deposit in a building society account is £100,000.

Answer 68

C&D
Both would be protected by the FSCS up to the £85,000 limit. Building societies can have voting rights
through their share accounts, but these do not guarantee better rates.
All interest from bank and building society accounts is paid gross irrespective of the tax status of the
depositor.

Question 69

Theresa, an experienced investor, has diversified her portfolio by buying some shares in Bovis Homes.
She should be aware that listed property company shares…
A. offer greater diversification than direct property investment.
B. will not be eligible to put into a ISA.
C. will be less volatile than direct property investment.
D. are affected by the quality of the company management.
E. will be easier to sell than direct property investment.

Answer 69

A, D & E
Shares in property companies are a good indirect way of investing in the property market. A buoyant
housing market should boost share prices across the industry, assuming that good company management
is in place
Housing companies will build and maintain many properties in different locations, diversifying their own
portfolios. The shares are as readily saleable as any other stock, which can mean that they are actively
traded, so their price will fluctuate, making them a more volatile investment than the value of a property
owned directly.
Listed shares are eligible investments for an ISA.

Question 70

When depositing cash into a bank account, an investor should be aware that…
A. the only return will be interest, the capital will not grow.
B. all accounts are obliged to pay an interest return.
C. interest payments to non-taxpayers are always made without tax being deducted.
D. protection from the FSCS may apply within certain limits.
E. a term account is more likely to pay a higher rate than an instant access account.

Answer 70

A, C, D, E
Capital growth is not possible from bank accounts with the only growth coming via interest distributions.
Accounts paying no or little interest are quite common.
Interest is paid gross to all investors.
FSCS protection applies to the first £85,000 of an investor’s deposit in any organisation that qualifies.

Question 71

Jessica and Troy have their savings of £50,000 each in a NS&I investment account and a building society
account respectively. When comparing the two accounts…
A. Jessica is effectively lending her money to the Government.
B. both are protected under the FSCS rules.
C. Troy will usually receive lower rates of interest.
D. both accounts will pay interest net of basic rate income tax.
E. Jessica can put a maximum of £1,000,000 in her account and Troy has no maximum.

Answer 71

A & E

Question 72

When comparing Richard’s preference shares and Rebecca’s ordinary shares in the same company, you
would correctly note that…
A. only Richard will have voting rights
8. Rebecca will have less protection in the event of the company liquidating
C. both of them have less protection than any corporate bond holders
D. both of them can choose whether to have their dividends on a cumulative or non-cumulative
basis

Answer 72

B & C
Ordinary shareholders are at the end of the queue for payment in the event of a company’s liquidation.
Preference shareholders are one in front of them, with corporate bond holders being in front of both.
Voting rights exist in ordinary shares but are rare in preference shares, as they only get the right to vote if
a dividend (or a series of them) is missed.

Question 73

Mark invests in several GILTS and corporate bonds. When comparing these…
A. GILTS are less volatile than corporate bonds
B. corporate bonds are sub investment grade, whereas GILTS are investment grade
C. if a higher yield is sought, a corporate bond is likely to be a better solution
D. corporate bonds are easier to trade than GILTS
E. GILTS are only available on the primary market

Answer 73

A & C
This question is all about the hierarchy of risk in bonds.
GILTS, with their government guarantee are the most secure, but offer the lowest returns. As a result,
their value tends to be less volatile than corporate bonds.
Both GILTS and corporate bonds are often relatively liquid but smaller companies can be harder to trade.
Sub -investment is a term for lower-rated corporate bonds, so many of them are investment grade, as all
GILTS are.

Question 74

George has a portfolio of shares comprised of AIM-listed shares, FTSEIOO-Iisted shares, and FTSE 250-
listed shares. He is unsure about the differences that the various listings make, and has asked you to
explain this to him. You can correctly state that an AIM listed company is likely to be…
A. smaller than a company listed on the FTSE 100 index.
B. less volatile than a FTSE 250 share listing.
C. a newer company with more risks than an established company.
D. less affected by rules when going through the listing process.

Answer 74

A,C & D
AIM is the easier to access, smaller company listing that many companies use as a steppingstone to full
listing. They are typically more volatile than FTSE listed shares, due to their size and often infancy.

Question 77

Gladys has a low attitude to risk. She currently holds £20,000 on deposit with her local Building Society,
and £10,000 in Premium Bonds. She has just received an inheritance from her mother and has another
£60,000 that she wishes to place on deposit. When considering Premium Bonds as an investment, Gladys
would be correctly advised that…
A. she can contribute a maximum of £50,000 per annum.
B. she is not guaranteed any return from her investment, but the capital is secure.
C. Premium Bonds have different issues, with different returns on each one.
D. the minimum purchase is £25.

Answer 77

B & D

Question 78

Stamp Duty/Stamp Duty Reserve Tax
What is the total amount of Stamp Duty/Stamp Duty Reserve Tax payable from the
following deals?
* Cuthbert buys £12,500 worth of Lloyds Bank Shares by Crest
* Diane buys £5,000 worth of BP shares by Crest
* Kelly sells £20,000 worth of Tesco shares by Crest
* Abdul buys £23,500 worth of Teatotal shares by Paper

Answer 78

Cuthbert £12,500 x 0.5% = £62.50
Diane £5,000 x 0.5% = £25.00
Kelly £0.00 (No stamp duty on a sale)
Abdul £23,500 x 0.5% = £117.50 - rounded up to £120.00
Total £207.50

Question 79

Rupert wants to know his rental yield from his flat in Mayfair.
* He bought it for £945,000 including costs of purchase and has a mortgage for £340,000.
* His tenant Clarissa pays £6,000 per calendar month.
Sachin also wants to know his rental yield from his house in Halifax.
* He bought it for £83,000 including costs of purchase and has a mortgage of £61,000.
* His tenant Sophie pays £450 per calendar month.

Answer 79

Rupert
£6,000 x 12 = £72,000 per annum
£72,000 x 100 = 7.62%
£945,000

Sachin
£450 x 12 = £5,400 per annum
£5,400 x 100 = 6.51%
£83,000