Flash Cards
1
Q
Features of Index-linked gilts
A
- Coupon payments & capital repayment are adjusted in line with inflation as measured by RPI
- Before Sept 2005 - RPI 8 Months before / After Sept 2005 RPI 3 months before
- Disposal not liable to CGT
- All interest taxable + inflation uplift
2
Q
Non-voting Ordinary Shares
A
- Identical to normal OS - carry no/restricted voting rights
- Keep control of company in a few hands
- Higher risk than normal OS
3
Q
Deferred Ordinary Shares
A
- Do not qualify for dividend until ordinary shares has reached a pre-determined level/specific period
- Greater voting rights/entitled to larger profits
- Relatively uncommon
4
Q
Alphabet Shares
A
- Ordinary shares that are divided into letters with different rights
5
Q
Cumulative Preference Shares
A
- Usual unless stated otherwise
- If dividend unpaid, shortfall carried forward
- Dividend must be paid to Preference ahead of OS
6
Q
Non-cumulative Preference Shares
A
- Lose the right to any unpaid dividend at the end of the financial year
- No arrears due when dividend payments resume
7
Q
Participating Preference Shares
A
- Pay a fixed rate of dividend
- Allow holder to participate in company profits
- Receive additional dividend
8
Q
Net Asset Value
A
- Value of the tangible assets that are attributable to the ordinary shareholders.
- Measures the amount available to shareholders if the company were to close down
9
Q
Price Earnings (P/E) Ratio
A
- Measure of how highly investors value the earnings of a company
10
Q
Dividend Cover
A
- Measures how many times the dividend could be paid out of the available current earnings
11
Q
Dividend Yield
A
- Measures the dividend as a percentage return on the current share price
12
Q
Earnings per Share
A
- Most widely quoted statistic
- Measures the profit attributable to ordinary shareholders divided by the number of OS in issue
13
Q
Net Present Value of Rent Payable
A
Calculated by:
- Annual Rent x Term of the Lease
- Apply discount for inflation
- Deduct threshold figure
14
Q
Jensen’s Alpha
A
- Difference between the return you would expect from a security and the return that it actually produces.
a = Actual portfolio return - [Rf + Bi(Rm-Rf)]
Rf = risk free rate of return Rm = market return Bi = beta of the fund portfolio
15
Q
Beta
A
- Measures the sensitivity of a security in relation to the market as a whole
- Market/Systemic Risk
- Measures volatility
16
Q
Aim of a Real Estate Investment Trust
A
Provide a savings and investment vehicle that:
- provides a liquid market in property investment
- is widely accessible by the private investor
- has a tax treatment that is closely aligned to the tax arrangements
17
Q
Disinflation
A
Decrease in the rate of inflation
18
Q
Deflation
A
Opposite of inflation - prices decline over time
19
Q
Stagflation
A
- Combination of stagnant growth and inflation
- Can’t be fixed by increasing IR
20
Q
General characteristics of a bond
A
- Fixed rate of interest
- Fixed redemption value
- Fixed redemption date
21
Q
Guaranteed Income Bond
A
- Single premium
- Provides guaranteed income each year for a specific period (payable in arrears)
- On maturity capital is returned
- Term usually 5 years
22
Q
High Income Bond
A
- Based on packages of derivatives
- Offer high income level
- Do not guarantee return of capital
- Return of capital depends on performance of one stock market index (or average of 2 or 3)
- If index meets pre-set performance target over the period o the bond, capital is returned in full
- If target not met, payment at maturity less than original investment
23
Q
Guaranteed Growth Bond
A
- Similar to guaranteed income bond except pay no income
- Single premium
- Guaranteed a capital sum in 3, 4 or 5 years time
- Capital sum free of CGT, basic-rate income tax already deducted at source
- High returns based on advantageous tax position of the life policies
24
Q
Unit-linked Bond
A
- Aimed at higher-rate tax payers
- Liability to basic-rate income tax is covered by tax paid within the funds
- Investor may take 5% of original investment with immediate tax liability
- Can be continued for 20 years/initial capital has been returned
- Relatively high net return when compared with fully taxable investments
- If growth > 5%, final encashment also growing.
- 5% return on fully taxed investment requires gross yield of 8.33%
25
Q
Distribution Bond
A
- Distinguish between income and capital
- Maximum of 60% total equity content; Minimum 50% sterling-based assets; yield of at least 110% of FTSE All-Share yield
- Income must be capable of being paid to the investor
- Income paid by underlying assets so doesn’t eat capital investment (can still rise/fall)
- Unit price falls with payout on distribution date
- Taxation the same as ordinary unit-linked bonds
26
Q
Guaranteed Equity Bond
A
- Unit-linked bonds with form of guarantee
- Fixed-term single premium life assurance policies
- Guarantee the return of the original cash investment on maturity + percentage of growth in the index
- If surrendered before fixed anniversary date, normal unit value principle applies
- Guarantee achieved by fixed-term deposit or zero-coupon bond
27
Q
Protected Equity Bond
A
- Allow investors to select a quarterly guaranteed level of protection - between 95% - 100% of the capital at the start of the quarter
- Protected against falls in excess of selected level
- Greater the level of protection, slower the bond’s value will rise if underlying index rises
