Other Direct Investments Flashcards
What are ordinary shares?
What are the two main rights of shareholders?
A share of the company and therefor a shareholder is in effect an owner of the company.
As a shareholder you have a right to -
1) Receive a share of the distributed profits of the company as income in the form of dividends
2) participate in decisions about how the company is run, by voting at shareholder meetings
What are securities?
Financial assets that can be traded. Can be divided into two main clases
1) those that represent ownership (equities)
2) those that represent debt (gilts and corporate bonds)
Factors affecting share prices?
Company profitability
Strength of the market sector
Strength of the UK and global economy
Supply and demand for shares and other investments
Direct investment in shares is low risk for individual investors because, over the long term, equity markets have outpaced inflation. True or false?
False.
It is high risk as if the company fails, the entire investment is at risk. It is difficult for investors to spread the risk effectively across a large number of companies and sectors.
Name 3 factors that can affect share prices?
Company profitability
Strength of economy (UK and internationally)
Strength of market sector
Supply and demand of shares
What are the implications of buying shares ex-dividend?
They will not reveive the next dividend payment following acquisition of shares. The previous owner of the shares will recieve this.
A share with a low P/E ratio is likely to be more expensive than other shares in the same market sector. True or false?
False
A low P/E ratio shows they are not in high demand and so will likely be less expensive.
If a company distributes 25 % of its profits, in the form of dividends to its shareholders. What would the dividend be?
A) 4
B) 8
C) 10
D) 25
A) 4
The profit is 4 times the dividend pay out.
What is the difference between rights issue and scrip issues?
A rights issue involves offering existing shareholders the oportunity to buy more shares in order to raise capital.
A scrip issue involves issuing additional shares to shareholders free of charge. The effect being to increase number of shares and reduce share price proportionately.
Elliott is considering investing in a buy to let property.
He thinks this is a good way to achieve a high retun.
What are the main drawbacks?
Suitable tenants hard to find
Must be in desirable location (schools and transport).
In time of recession letting may be difficult and prices may fall.
Property less easy to realise than other investment.
Investment costs are high, management, stamp duty and Legal charges.
Government measures to discourage BTL have made the tax position less advantageous.
How can a buy to let investor claim relief for wear and tear on furniture?
They are allowed a furniture replacement relief, which allows the actual cost of replacing to be offset against profits.
Treasury bills are zero-coupon securities. What does this mean?
They do not pay interest, instead they are issued at a discount to their par value.
Commercial paper is generally issued for a term of between three and six months. True or false?
False.
Commercial paper is generally issued for between 5 and 45 days. With 30-35 days being typical.
Certificates of deposit are generally issued for between 3 and 6 months.
