Main asset classes Flashcards
Order these in priority if a company liquidates:
Ordinary shares
Creditors
Preference shares
- Creditors
- Preference shares
- Ordinary shares
What are the differences between ordinary and preference shares?
- Ordinary shares have voting rights whereas preference shares don’t.
- Preference shares pay fixed rate of dividend half-yearly, whereas ordinary shares are not guaranteed a dividend
What’s the difference between cumulative and non-cumulative preference shares?
If a dividend payment is missed, cumulative shareholders are entitled to it at a later date.
How is stamp duty and SDRT levied on equities?
SD - 0.5% of purchase price rounded up to the nearest £5 and waived for purchases <£1000.
SDRT - 0.5% of purchase price rounded to the nearest penny, no minimum transaction amount
What is a scrip dividend?
It is a dividend paid in the form of additional shares instead of cash. Treated as cash dividend therefore income tax liable but no SD/SDRT
If total earnings are £9m, of which £1m is distributed to preference shareholders and a further £500k is kept as reserves, what is the earnings per share if there are 6 million ordinary shares in issue?
9-1=£8 million attributable to ordinary shareholders
8/6 = £1.33 earnings per share
Total dividends of £6 million were paid out to 10 million ordinary shareholders, and the current share price is £7. What is the dividend yield?
Dividend per share = £0.60
0.6 / 7 = 8.57%
If the earnings per share are £3.50 and there are 4 million ordinary shares in circulation, what is the dividend cover if total dividends are £4 million?
4 mil * 3.5 = £14 million total earnings
14 mil / 4 mil = 3.5
What are the income tax, CGT and IHT characteristics of the four main asset classes?
Cash - savings income (set against PSA), no capital gain, falls within estate
FIS - savings income (set against PSA), exempt from CGT, falls within estate
Property - non-savings income, CGT liable, falls within estate unless main residence and have direct successors
Equities - dividend income (set against dividend allowance), CGT liable, falls within estate unless unlisted shares held for minimum of 2 years
Describe the ‘parental £100 rule’.
If the parents gift money to child into a cash ISA and it earns £100 in interest, that would all be registered to the parent. If it’s under that, the child keeps it.
A eurobond issued by the UK denominated in Yen inthe US would be …
A euroyen bond
Is it the clean or dirty price that excludes the built-up interest, and is this the price that is paid by an investor?
It is the clean price and no, the investor will pay the dirty price.
If a bond is purchase ex-dividend, what does this mean?
The interest payment has been made in the last 7 days and the seller will receive the full six-months’ interest. However, the price is adjusted to reflect the buyer’s deprived interest. Thus, they’ll pay the clean price minus the interest due in respect of the period for which the buyer owned the bond but which went to the seller.
A bond has the following characteristics: Clean price: £170 Nominal value: £150 Coupon: £5 8 years to maturity
What is the running yield and the gross redemption yield?
Running yield = 5/170 = 2.94%
Gross redemption yield = 2.94% + [(150-170)/8]/170 = 1.47%
What would investors expect to happen to interest rates if there is an inverted yield curve?
Go up in the short-term and/or fall in the long-term, making shorter-dated bonds more preferable
