Phase 4 re sit

Question 1

Name 3 Myners principles and who would adopt them?

Answer 1

Pension funds and trustees would adopt them regarding decision making: 6 principles :- Effective decision making, clear objectives, transparency & reporting.

Question 2

An example of direct litigation and the meaning?

Answer 2

Bringing a lawsuit against a company on behalf of shareholders, In 2008 APG Pensions represented shareholders with shares in Merck. Mis-selling the effectiveness of drugs. Ultimately saught compensation and ways of making the new drug process more transparent.

Question 3

What is the purpose of the shareholders rights directive?

Answer 3

Aims to empower wealth management and private client sectors. Oversight organisations may have ann enhanced response if they get retail nominee holdings together.

Question 4

What is a SICAV

Answer 4

Open ended CIS using unlisted shares.

No gearning, no stamp duty, no initial charge.

Question 5

Why are equities known as growth assets?

Answer 5

Due to the relationship with inflation and growth. As companies pay salaries which provide revenue they company can pass on factor prices.

Question 6

current yield equation

Answer 6

current yield = coupon / bond price

Question 7

What is the ISA limit?

Answer 7

£15,240 between stocks and shares ISA’s or cash ISA.

Question 8

How are reporting funds income taxed?

Why are non reporting funds taxed purely as income?

Answer 8

Taxed as dividends as it is a corporation and the fund is regulated.
Funds may be attempting to turn income into capital growth so investors are penalised and taxed at marginal rate.

Question 9

what is jensens alpha?

what is the other name for the treynor ratio?

Answer 9

RP - CAPM . The extent to which a portfolio out or underperformed.
The reward to volatility ratio.

Question 10

How many mutual funds are there? What was the fund which grew too over 100Billion USD before losing effectiveness.

Answer 10

8000 - The fidelity Magellan Fund topped $100Billion in 1999 and a shift from small cap into big cap effected performance.

Question 11

Once you become a uk resident and domicile what is your tax position?

Answer 11

You will be taxed on an arising basis on all world wide income and gains subject to double tax relief if overseas assets are held. It is worth looking to take advantage of a partners domicile to utilise remittance based taxing.

Question 12

What is the sharpe ratio?

Answer 12

Rp-Rf / SD Total (Not just SD systematic or just Unsystematic) You calculate it using your calcualtor STAT function

Question 13

What is the sortino ratio?

Answer 13

Rp - R target / SD(downside risk)

SD Downside will take the SD of all values below the target rate.

Question 14

What is the appraisal ratio?

Answer 14

Alpha (Rp - Rb) / SD unsystematic risk

Question 15

What is M^2?

Answer 15

Similare to sharp but easier for clients to interpret than sharpe. i.e if 10% is the value then you can clearly see you outperformed the market by 10%

Question 16

Is the Annual Management Charge VATable?

Answer 16

For most forms of CIS, including UTs, ITs, OEICs are not chargable for VAT on use within pension funds.
When pension funds are pooled, the AMC and transaction costs together will have VAT added on top.

Question 17

What is the Asset Liability Model?

Answer 17

Surplus optimisation is utilised from a mixture of mathematic formulas or algorithms in order to maximise the value of assets and meet liabilities in the future.

Question 18

SDLT rates

Answer 18

0 - 125k          - 0%
125k - 250k    - 2%
250k - 925k   - 5%
925k - 1.5m     - 10%
1.5m+               - 12%

Question 19

what are eurobonds?

Answer 19

Annually paid gross coupons, bearer securities issued in eurocurrency.

Question 20

What is the two beta calcuations

Answer 20

Beta = (SDstock/SD of market) xCC
Remember Cov = CC x SD x SD
or Beta = COV of stock/Market Variance

Question 21

What is the dividend yield spreads reverse yield gap?

Answer 21

If the Dividend yield spread becomes positive and GRY on bonds exceeds dividend yield on shares then this is the reverse yield gap.

Question 22

What is residency?

Answer 22

Residency is determined the statutory residence test.
If you meet the automatic residence test then you are automatically UK resident. For example if you spend at least 183 days in the UK.
The sufficient ties test is considered. If you have sufficient ties with the UK then you are deemed to be UK resident. This test involves looking at family, accommodation, work and county ties and the number of days you are physically present in the UK. The more days you are present the less ties are needed.

Question 23

What is domicile

Answer 23

KEY FOR IHT as only liable to IHT on UK assets! Domicile is something you inherit from your parents and can be changed providing:
All ties with UK are severed
You survive three years from the date of change
Unlike residency, you can have only one domicile.
Residency is the key factor for income tax and capital gains tax.
UK residents liable to tax on worldwide income and gains (arising basis)
UK resident but non-UK domiciled can elect to have foreign income/gains taxed on a remittance basis

Domicile is also the key factor for inheritance tax:
If UK Dom, then subject to inheritance tax on your worldwide estate
If Non-Dom, then there is no liability to UK inheritance tax

Question 24

What are the Remittance based charge costs?

Answer 24

If res non dom - if you were resident for 7 of the 9 passed years in the UK there is a £30k charge and if 12/14 = £60k, 17/20 = £90k

Question 25

What is the Behavioural finance initial issues.

Answer 25

Limited cognotive capacity means people have problems inferring relevant information. Investors have bounded rationality means a wide choice of complex investments lead to choice overload and procrastination.

Question 26

Beta unlevered calculations.

Answer 26

BU=BL/1+Debt to Equity

Question 27

What is the coupon and current yield equation?

Answer 27

coupon = bond price x current yield

Question 28

Which investment vehichles are allowed to use gearing?

Answer 28

UCITS funds are allowed to borrow up to 10% of their net asset value under UCITS III. `So are Investment Trusts and hedge funds.

Question 29

what is the other Gordon’s growth model assumption?

Answer 29

forward expected return yield and growth = RF + Risk premium

Question 30

Who came up with the EMH

Who came up with the three different forms?

Answer 30

Louis Bechelier came up with the theory 1950 and came up witht he random walk notion.
Eugene Fama suggested the three forms.

Question 31

What is bilateral relief?

What is double tax relief?

Answer 31

When the UK has an egreement for double taxation this is bilateral releif.
When there is no agreement a credit against foreign tax will be given.