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Business > Invesment *G11 > Flashcards

Invesment *G11 Flashcards

1
Q

When the business compensates its shareholders for taking a risk by sharing shares (a) is declared

A

a = dividends

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2
Q

Investment takes place when (a) in order to (b)

A

a = money is saved

b = make it grow

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3
Q

What is the amount invested known as

A

Capital contribution

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4
Q

What are the criteria when deciding in an investment opportunity *3

A

*risk
*ROI
*Timeframe

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5
Q

Explain risk as a criteria when deciding on an investment opportunity

A

Risk is the possibility of losing part of investment/making profit less than anticipated

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6
Q

The bigger the risk, the bigger the

A

Possible reward

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7
Q

ROI is an indicator of what

A

an indicator of what the investor will get back
Therefore measures efficiency

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8
Q

Explain timeframe as a criteria when deciding on an investment opportunity

A

The longer the period, the greater the risks the investor can afford to take

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9
Q

What to ask when thinking about timeframe

A

Is it short, medium or long term

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10
Q

What is risk profiling*

A

Where investors complete an investment risk profile* for the investor to deter main the best suited investment options*

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11
Q

What does a risk profile help create

A

An understanding of investor’s tolerance
Therefore expected return

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12
Q

What are issues the investor will have to include *3

A

*the time horizon of investment
*investor’s financial position
*risk tolerance

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13
Q

Explain time horizon of investment

A

The longer the time horizon, the more the customer can afford low high risk investments

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14
Q

Explain the financial position of the investor *2

A

When a decision is taken on the size of potential investment* relative to investor’s total net assets worth*

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15
Q

Explain investment objectives and risk tolerance

A

High outcome —> high risk

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16
Q

What is diversification

A

Spreading the investment risk between various asset classes

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17
Q

Why should most investment plans include a combination of the four major asset classes

A

Benefits of diversification

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18
Q

Investors that hold a combination of (a,b,c) stand a greater chance of higher returns than those who invest in (d) investment

A

a. Equities
b. Bonds
c. Money market instruments
d. Conservative investment

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19
Q

Example of a conservative investment

A

Cash

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20
Q

Sound strategy to control balance and risk = a + b + c

A

a. Growth potential of equities
b. Higher income of bonds
c. Stability of money market funds

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21
Q

What are the four major asset classes

A

Cash
Property
Bonds
Equities

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22
Q

Name the characteristics of cash *3

A

*cash investments offer regular interest income
*cash is a safe investment
*capital will not be subject to huge external fluctuations

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23
Q

Cash includes investments such as … *3

A

Money market accounts
Bank deposits
Fixed deposits

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24
Q

Safe investment definition

A

Not make or lose a fortune

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25
Q

Interest definition *2

A

Payment made by a financial institution* for the use of money deposited into an account*

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26
Q

What risk is guaranteed with cash and explain *2

A

this investment doesn’t have potential growth potential therefore capital sum isn’t guaranteed to be protected against inflation

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27
Q

Property can be in the form of *2

A

*own home
*buy-to-let property

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28
Q

Property is usually the (a) asset in a person’s investment portfolio

A

a. Biggest

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29
Q

Property can keep up with (a) and be an effective way of (b) one’s investment

A

a. Inflation
b. Gearing

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30
Q

Gearing definition

A

Borrowed:own <——— capital

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31
Q

Property can keep up with inflation and be an effective way of gearing therefore… *2

A

External financing investors can increase ROI*
This is referred to as positive leverage effect*

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32
Q

What is the risk associated with property and what does it depend on *2

A

risk is moderate to high*
depends on economic and political environment*

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33
Q

Debt in the form of a mortgage bond can help investors acquire…

A

An asset

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34
Q

Drawback of property

A

Lack of liquidity- cannot sell it as quickly as other asset classes

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35
Q

Bonds aka

A

Gilts

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36
Q

Bonds definition *2

A

Interest bearing securities (issued by government/companies)* in order to borrow money*

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37
Q

Explain how bonds work *2

A

Bond issuer promises to pay regular interest* and original investment*

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38
Q

What is the risk of bonds and explain *2

A

*moderate risk
*capital sum investment can fluctuate while the interest payment is higher than cash

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39
Q

Equities aka *2

A

Shares
Stock

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40
Q

What does an investment in equities mean

A

Investors have obtained part ownership in the company
Therefore became shareholders

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41
Q

a company listed on a stock exchange means that

A

Shares can be traded freely on that stock exchange

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42
Q

What risk are equities and explain *2

A

*high risk
*business could flop however inflation can be beaten if invested in blue chip companies

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43
Q

Blue chip company definition

A

Major, stable companies

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44
Q

Investors with high risk portfolios should consider

A

Investing in equities

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45
Q

The longer the time before investment, …

A

The more one should invest in equities

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46
Q

Equities ROI

A

High

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47
Q

Debentures definition

A

Loan to a company and earn interest

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48
Q

Debentures risk and ROI

A

Both moderate

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49
Q

Unit trust definition

A

Group of investors who pool their capital to invest in financial markets

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50
Q

Unit trust risk and ROI

A

Risk. Moderate
ROI. High

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51
Q

Money market account meaning

A

A type of unit trust fund that invests interest bearing
Short time savings

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52
Q

Money market account risk and ROI

A

Both low

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53
Q

Retirement annuity definition

A

Saving plan to provide money for retirement

54
Q

Retirement annuity risk and ROI

A

Risk. Low
ROI. High

55
Q

Annuity collectibles meaning

A

Items that have the potential to gain capital over medium-long term

56
Q

Annuity collectibles risk and ROI

A

Risk. Low
ROI. High

57
Q

Name the investment strategies *4

A

Conservative
Defensive
Balanced
Growth

58
Q

Explain conservative investment strategy *2

A

Investor looks for:
*high income while maintaining growth in capital
*low risk level

59
Q

Conservative investment strategy invest more in and less in…

A

More in. Bonds, property and cash
Less in. Equities

60
Q

Explain defensive investment strategy *2

A

Investor looks for:
*stable income but also growth in capital
*low risk

61
Q

Defensive investment strategy invests more in and less in…

A

More in. Bonds, property, cash
Less in. Equities

62
Q

Explain balances investment strategy *3

A

Investor looks for:
*both growth and income
*with moderate risk level
*over medium-long term

63
Q

What does balances investment strategy invest more in *2

A

Equities
Bonds

64
Q

Explain growth investment strategy *2

A

Investor looks for:
*long term capital growth
*high risk level

65
Q

What does the growth investment strategy invest in

A

Equities
Less risky than market as a whole

66
Q

How does the RA process work *2

A

Monthly premium is payed for lump sum* and monthly pension* after retirement age

67
Q

Retirement age

A

55-65

68
Q

Payments FROM RA serve as *2

A

*retirement income
*pension

69
Q

In relation to RA, Amount received depends on… *2

A

*size of contribution
*how long contributions where made

70
Q

RA contributions are (a) deductible

A

a. Tax

71
Q

What is a pension fund *2

A

A form of retirement savings* when an employer organises the investment of employees retirement funds*

72
Q

Pension contributions are deducted before calculating…

A

Taxable income

73
Q

Pension fund is a common asset pool meant to *2

A

Generate stable growth over the long term*
Provide pensions for employees*

74
Q

What is an endowment policy *3

A

A long term savings plan* when money is invested for a specific period of time* and assurer pays out maturity*

75
Q

Most endowments offer *2

A

*choice of when money is invested
*risk prepared to accept

76
Q

Companies list on stock exchange to

A

Gain access to more capital, but must comply with strict rules

77
Q

Shareholder is a (a) of a company

A

a. Proportionate owner

78
Q

Two methods to become a shareholder on stock market

A

*shares are bought when company first issued them (the person thus contributes capital)
*shares were bought from a previous shareholder

79
Q

Shareholders invest in shares with the hope that*2

A

*value of shares will rise over time
*form of income by means of dividends

80
Q

Companies distribute dividends usually

A

Twice a year

81
Q

Dividend meaning

A

Shareholders portion of profit

82
Q

Stock markets provide a market for dealing in

A

Listed shares and securities

83
Q

Prices for financial instruments depend on

A

Supply and demwnd

84
Q

Factors that affect share price *max 6 min 4

A

*changes in legislation
*changes in company policy
*state of economy
*global market trends
*industry performance
*financial position of business

85
Q

Performance of stock market is gauged by

A

Performance of an important index

86
Q

An index reflects…

A

The performance of grouping shares on the stock market

87
Q

SA’s major index

A

JSE All Share Index

88
Q

Cost of buying equities *5

A

*stockbroker’s fee
*marketable securities tax
*STRATE levy
*administrative costs
*VAT

89
Q

What is S.TRA.T.E levy

A

Share Transactions Totally Electronic
R6 per trade

90
Q

Bulls meaning

A

Optimistic investors that believe shares will go up

91
Q

Bears meaning

A

Negative investors that feel shares will go down in price

92
Q

Spread meaning

A

Difference between asking price and bid price

93
Q

Market capitalisation equation

A

Company share price X number of shares in an issue

94
Q

Rights offer meaning

A

Offer to existing shareholders to have the first option to buy new shares

95
Q

Green chip shares

A

Company where pre-described requirements on environmental issues are met

96
Q

Black chip shares

A

Share in company that is BEE compliant

97
Q

Market close refers to

A

Prices at the end of the day for share

98
Q

Daily move (DM) refers to

A

% of how much share price moved during the day

99
Q

Dividend yield (DY) refers to

A

Dividend per share earned

100
Q

Price earring ratio (PE) refers to

A

Share price per share

101
Q

Day’s volume (DV) refers to

A

How much was traded in a day

102
Q

What is a stop loss *3

A

A predetermined price* where you sell a share* to stop loss*
You decide on a loss you want to accept and sell shares

103
Q

What is rebalancing

A

Investing half in equities and half in bonds and cash

104
Q

One can buy units in a portfolio of bonds/ shares instead of

A

Buying bonds or shares yourself

105
Q

What are the three parties to a unit trust investment

A

*unit trust management company (MANCO)
*trustee company
*unit holder

106
Q

What does a MANCO do

A

Manage investments on behalf of investors

107
Q

What does a trustee company do

A

Are responsible for the safekeeping of portfolio of assets

108
Q

What is a unit holder

A

A person and other investors

109
Q

What does inflation do to cash

A

Erode its value

110
Q

Unit trust investment is usually a what term investment

A

Medium to long term

111
Q

A bank deposit is *3

A

A stable* low risk income* earing interest*

112
Q

A call account is *2

A

A bank account* with cash being available with a certain notice period
E.g 32 days notice before withdrawal

113
Q

What is a fixed deposit *2

A

Investor invests for a fixed period of time* and may not withdraw before maturity date

114
Q

Interest rate on a call account is higher than

A

A normal savings account where cash is immediately available

115
Q

Short term investments are traded on money market and have a maturity lower than

A

*12 months

116
Q

Advantages of money market funds *4

A

*gain access to money market instruments even after investing small amount
*can withdraw anytime
*interest rate is higher than a bank deposit
*interest rate risk is eliminated because MMF are only allowed to invest in instruments for no more than 90 dyss

117
Q

Example of collectibles *4

A

Coins, stamps, diamonds, art

118
Q

Attraction for collectibles *2

A

*potential of capital gains over medium to long term
*international market

119
Q

Disadvantages of collectibles *4

A

*no monthly investment
*high level of expertise before trading
*gold coin value depends on good price at the time
*transportation and value difficulties

120
Q

Off shore investments refer to

A

Foreign investment

121
Q

Why include foreign components in investment portfolio *max 5 min 3

A

*SA as an emerging market makes its currency volatile
*diversification
*foreign markets offer better value
*international markets have more opportunities
*if you want to emigrate, you can invest in something there

122
Q

Returns on investment are determined by *2

A

*price movements
*exchange rate

123
Q

A debenture holder does not become owner of business but rather

A

A creditor

124
Q

Investor of debenture receive capital investment..

A

Back at a pre determined date

125
Q

Advantage of debentures

A

Legal obligation of of company to repay capital amount and interest

126
Q

What does tax do to ROI

A

Reduces the ROI

127
Q

The best way to understand tax on investments is to

A

Separate income form capital invested

128
Q

Interest earned and dividends are added

A

Added to gross income and taxed

129
Q

Capital Gains Tax comes into effect when a person

A

Disposes of an asset

130
Q

Capital gain/loss is the difference between…

A

The difference between selling price and cost when it was purchased

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