Investment Planning Flashcards
Ranking of creditors
First Mortgage liabilities and asset backed securities
Secured debt
Unsecured debentures
Capital securities
Preferred shares
Common shares
Difference between bond and debentures
Bond has asset which acts as collateral whereas debenture does not
Interest rates are higher on debentures
Date of record (dividend)
Date that will determine which shareholders will receive dividend
Ex-dividend date?
Second business day before date of record and the date on which the shares start to trade on market without a right to dividend
Ex-dividend share?
Share without the right to the declared divididend
Cum-dividend share?
Share with the right to the dividend
Hedge funds risk drivers?
First order: systematic risk which affect directional strategies
Second order: leverage, default, deal break, trading, counterparty
Operational: relates to hedge fund as a business entity, they are new and usually dependent on superstar manager
Private equity types
Leveraged buyout: use debt to buy company
Mezzanine capital: financed by high yielding unsecured preferred equity or subordinated loans. Risk of default is highest and could pay high returns
Venture capital: financing new and untested companies. Venture tends to highly diversify portfolio given the high probability of default. Must have detailed exist strategy
Infrastructure: grown considerably large funding gaps have opened in repairing and building infrastructure across various countries. Includes roads, ports, airports and waterworks. Highly illiquid and long date.
Canada savings bonds
3 year term, regular interest or compound interest
Regular i, pays annually and you include interest income in your taxes
Compound i, not paid annually. Even though you don’t receive interest, still need to include yearly earned interest income in your taxes annually
Strip bonds
Bought at discount and mature at par value. Difference is considered as interest income
Bond equivalent yield is normal interest rate compounded semi annually.
Callable bond
Issuer has right to redeem bond prior to maturity after a period of time
Yield to call, is bond equivalent yield from purchase date until the anticipated call date
Puttable bond
Gives holder the option of redeeming bond for par value during a specific tome before maturity
Mortgage backed securities
Investment represents ownership of cash flow from group of mortgages.
Right (equity)
Opportunity to purchase a prescribed number of newly authorized shares in order to maintain proportional ownership of existing corporation
Often specific and short period of time
Exercise price usually set below market price
Warrant (equity)
Entitles holder to purchase a specified number of corporation’s common stock at a predetermined price for extended period of time
Redeemable preferred shares
Corporation can forcibly call, redeemable preferred shares. If so, shares are cancelled and replaced by cash payment.
Retractable preferred shares
Have a finite lifetime ending on a specified maturity date. On the maturity date, the corporation cancels the retractable preferred shares in return for a predetermined cash payment.
REITs benefits
Conservative leverage, most managers generally avoid development and invest in established income producing properties
Tax efficiency, pretax income flows to investors and investors can defer tax until the units are sold by lowers the REITs adjusted cost base
Land banking
Purchase or raw land outside urban area with the expectation that the urban area will expand
Brownfield development
Redevelopment of abandoned or underused commercial or industrial property generally in urban community
Redevelopment projects
Involves purchasing income producing properties with the longer term objective of redeveloping the propertied and increasing the income they generate
Mortgage syndications
Invest in higher risk mortgages that do not meet the criteria established by traditional lenders
Rates are much higher
Mortgage fund in specific project
Blind pools
Investors are presented with types of properties the pool mgmt intended to invest in however exact investments are unknown at the time of fund inception
Mutual fund’s structures
Trust or Corporation
Diff. Timing of when capital gains are triggered
Trust structure: deemed disposition occurs when redemption or switch is made from the fund
Corporate class structure: deemed disposition will inly happen when the investor redeems money out of family of funds. Switching from one to another fund within family of funds will not trigger a deemed disposition.
