Mocks Flashcards
Modified duration of a bond
Measure on approximating how much the price of a bond could decline with an increase in interest rates.
What collective investment offers a discount to the net asset value?
Investment trust
Downside risk
Risk of price declining
Junior ISA max. age
18
Fixed interest securities
Loans to government or companies
Reinvestment risk
When fixed rate expires then will not be a comparable return on reinvestment
Void risk on a property
Risk of leaving property vacant as unable to find a tenant
SDLT on rent received rate and min. value
1% of rental excess above £125k for resi.
1% of rental excess above £150k for resi. Then 2% above £5m
E.g. rent of £2,00pm x 12 x 5yr tenancy = £15,000 so would be taxed on £25k if resi.
Hard commodity and soft commodity
Hard undergoes an extraction process
Soft is typically grown rather than mined
Disadvantage to globalisation
Political landscape is likely to mirror its economic prospects
Uk capital account
Deals with investments and loan in and out of the UK
Event risk
A natural disaster
Net asset value
Value of all of the shares added together is equal to the value of the assets held
Information association
Determine sectors within funds
Index tracking fund:
Full replication
Stratified sampling
Optimisation/synthetic
Full replication - match index as best as possible
Stratified sampling - hold sample of funds within index
Optimisation/synthetic - use computerised system to buy and sell shares
4 diversification rules of a UCIT
No more than 10% in one fund
No more than 4 companies have max share of 10%
Max. Of 5% there after
Min. Number of shares possible is therefore 16
2 Expemptions of UCIT rules
If a tracker fund the max of 20% in most cases. 35% in extreme cases.
Lower limit of 6 securities of fund for gov. bonds
Is gearing allowed on a permanent basis within a UCIT?
No, only temporary
Gearing limits for UCIT, non-UCIT, QIS
UCIT - Max. Of 10% and non-permenant
Non-UCIT - max. Of 10%
QIS - Max. Of 100% of NAV
Unit trust
Trust manager buys and sells bonds or shares.
Protected by the trustees and legal owner of assets
Fund split into units
How to remove a manager within a unit trust
Majority unit holder vote
How to calculate CGT if takes income from basic to higher tax bracket?
Use up basic income tax bracket and tax at 10% then 20% there after
Is a unit trust open ended?
Yes
Is stamp duty paid on a unit trust or OEIC?
No
OEIC
Open ended
Ran by a director
Protected by company law and depository
Annual CHT exemption for unit trust and OEIC?
£12,300
Fettered and unfettered OEIC or unit trust
Fettered - spread funds equally into funds
Unfettered - invest in funds and company funds
Which is typically more expensive fettered or unfettered?
Unfettered
EU savings directive does what?
Provides an auto exchange of information between members states to avoid tax evasion
What will taste any restrictions of the investment within an investment test company?
Articles of association
Investment trust company
PLC that invests in other companies
Close ended
Driven by supply and demand
How many people classified as a close company?
5 or fewer
Hurdle rate
Rate an investment must grow to repay each class of share at wind-up date
Conventional investment trust
One main class of equity shares with share holder entitled to all gains
Most have an indefinite term unless a Conventional limited life trust
Conventional limited life trust
Conventional investment trust but on maturity investors vote whether to wind-up and NAV is distributed
Split capital investment trust
Multiple classes of shares, entitled to different returns with different priorities on wind-up.
Where are hurdle rates calculated and advertised?
Association of investment trust companies monthly information service
Asset cover - meaning of 1, below 1 and above 1
1 - assets match money required to repay all share classes on wind-up
below 1 - assets less than liabilities
above 1 - assets more than liabilities
Split-Capital shares
Give entitlement to income and capital
Warrant within an investment trust company
Right to buy shares at s fixed price at s pre-determined date
What effect does warrants have on an investment trust company?
Dilute the NAV
Zero dividend preference shares
Fixed redemption date of no more than 10yrs
No income entitlement
Preferential rights over capital distribution on wind-up
What does 100 and 130 mean regarding hearing
100 is no gearing
130 is 30% gearing
Non-profit investment
Providing premiums are paid a set figure will be received on end date
With profit investment
Premiums are paid and bonuses are added to the sum assured which is received at end date but no guarantee bonuses received will take investment to expected return
Bonuses within a with profit policy
Annual, terminal, special
Low cost with profit policy
Lower sun assured and give element of life policy with LTA
Low start, low cost with-profits policy
Lower sun assured and life policy on DTA basis
Unitised with profits based investment
Various investments expressed as units, where unit price cannot decrease
Can a unitised with profits based investment value drop?
No
Difference between fixed unit pricing and variable unit pricing within a Unitised with profits based investment
Fixed - price remains the same
Variable - value increases gradually over time
What happens when an investment fund is closed?
Can no longer accept new money
Pound costing average
Spread investment over period of time investing more when price is lower
Can funds be switched within a life assurance based investment without tax implications?
Yes
Min. term and max. contribution per year in order to be classed as a qualifying policy
Min. term of 10yrs
Max. contribution of £3,600
Cannot be surrendered in first 10yrs or 3/4 of term if shorter than 10yrs
What % can you take from a bond each year of your original investment without incurring a tax implication?
5% and this is cumulative
Bond
Usually split up into segments of investment
Give an investment sum and this is returned at the end of the term
Distribution bond
Capital and income is considered as one and reflected in unit price. Can only withdraw by selling units
Classed as a unit linked bond
Must have equity of 60% and yield of 110% min.
Unit linked bonds
Typically open ended
Written as whole of life policies
Can be cashed in at any time
Guaranteed equity and protected bonds
Protection on equity of 100% and 90% for protected bonds which is achieved by purchasing a zero coupon bond for another company
Gross roll up of an offshore investment means what?
Suffers very little taxation
Difference between onshore and offshore bond taxation
Only difference is no taxation within fund so do not benefit from 20% investor deduction on tax and is all paid at redemption
Segmentation
Investment split into segments of same value
Is there CGT or income tax on a endowment?
No income tax if a qualifying policy but always CGT unless already paid income tax
Max. Premium into a friendly society
£25pm or £270 per year
Exchange traded funds
Funds that track an index
Property unit trust
Value of investment must match NAV
Able to buy shares in property related investments or property directly
Insurance company property bond
Specialise in holding commercial property
Value directly relates to value of property held
Cannot borrow
Property authorised investment definition and 3 fund rules
Tax treatment moved from fund to investor
Investor max share is 10%
Must be widely available
60% value in property assets and income from property assets
Tax relief for EIS, SEIS, VCT
EIS - 30%
SEIS - 50%
VCT - 30%
ISA transfer rules
Prev. yr can be transferred in parts but not current yr
Innovative finance ISA cannot be transferred between provider but can go cash ISA back to IF ISA
cash to cash ISA must be completed within 15 days but other 30days
Child trust fund and JISA max. contribution
£9k per year
If aged 16-18 what benefit do you have with an ISA
Can contribute to JISA £9k and £20k into other ISA tax free
Is there tax on a Purchased life annuity’s income?
No
Derivative
Agreement to purchase something at a set price at a set time in the future eg fuel
Can you trade a derivative?
Yes
Future on a derivative
Legal obligation to buy or sell
Option on a derivative
Gives the buyer an options to buy or sell asset on fixed date
What is an initial margin when referring to a derivative?
Deposit paid on an option or future
Who is the short side and long side of a deal
Short side - seller
Long side - buyer
Exchange delivery settlement price
Price paid on redemption of option or future buy buyer
Call option
Put option
Call - gives option buyer right to buy
Put - gives option buyer right to sell
Is cost of a call or put option considered for CGT?
Yes
Structured product
Type of insurance bond that is tracked to an index but if funds goes down do not lose money, if go up wil give money but if go up a lot then will share profits with the fund
Can a zero coupon bond be traded?
No
What does COBS specify?
Reasonable steps must be taken to ensure suitable recommendations are made by obtaining information from a client
What are client agreements?
Standard document that is tailored to clients needs
3 main factors with a risk profile
Capacity for loss
Attitude to risk
Tolerance of risk
Stochastic risk modelling
Measures range of possible returns from an investment over a period of time
If an advisor generates their own portfolio then they need to establish what 3 things?
Process for selection, research and review
Should something be recommended because it is tax efficient?
No, suitable then made tax efficient
Which of attitude to risk and capacity for loss is subjective and fact?
Attitude to risk - subjective
Capacity for loss - fact
Capital preservation
An investor who is risk averse seeking return equal to or slightly above inflation
Total return investment
An investor seeking long term growth from gains and income
The shortest time horizon means they are generally what kind of investor?
Capital preservation
The longest time horizon means they are generally what kind of investor?
Total return so long term growth
Theoretical approach
Going with mathematical analysis to measure risk reward relation ship to maximise return
Pragmatic approach
Work on historical data favouring those with long term positive performance
Portfolio optimisation
Plots portfolios creating efficient frontier so tries to return highest level of return for given level of risk
Strategic asset allocation
Set asset allocation eg 60% shares 40% bond
Tactical asset allocation
Strategic asset allocation but can very asset allocation within a range
Information ratio
Compare portfolio performance to benchmark
Sharpe ratio
Was returns good investment or result of excess risk
Alpha
Good indication of stock selection
Time weighted return
Measures performance of different fund managers
Money weighted return
Meansure return on capital over a specified period
Panel of takeover and mergers charge what?
£1 above £10k on purchases and sales
Stamp duty and stamp duty reserve tax for shares for paperless and paper
Paper - Stamp duty - rounded to next £5
Paperless - stamp duty reserve tax - rounded to nearest penny
Stamp duty land tax on rent
1% above £125k for resi.
1% above £150k for commercial
SDLT on non resi. purchases
2% from £150k to £250k then same so 5% over this
Bond taxation
Can withdraw income upto 5% per year free without income tax until money invested returned
Pay 20% tax within fund so income tax is 20% less
CGT is at usual rate
Stratified sampling
Has sample of shares in index but chose which shares to hold
Optimisation/synthetic
Computerised system picks shares within index
