Repeated mistakes Flashcards

Question

Earnings yield

Answer 1

= EPS / share price = (net income / no. of ordinary shares)/ share price

Answer 2

DY = div per share / market price per share UK = gross usually but can be net measures income return from shares growth companies have lower DY as mosre income reinvested, value have higher DY

Answer 3

DC =net income / common div Indicates sustainability of the dividend, or the likelihood of the existing dividend being maintained Literally, how many times a company could have paid its dividends Indicates how much profit is re-invested

Answer 4

gearing ratio = LT liabilities / capital employed cap employed = LT liabilities + equity Debt is riskier (from the issuers’ point of view) than equity as it typically requires fixed and obligatory interest payments The higher the proportion of debt a company has the greater the risk to shareholder dividends

Answer 5

paid by buyer on purchase of UK land/property up to 125k = 0% next 125k (to 250k) = 2% next 675k (to 925k) = 5% next 575k (to 1.5m) = 10% remainder >1,5m = 15% 2nd home = +3% overseas buyers = +2% 500k and above = 15% when purchase by corp bodies

Answer 6

SD = volatility, variability and degree of uncertainty - measures total risk (systematic and specific) coefficient of variation (CV) - measure of risk vs return CV = % SD / % avg return = risk / return -1

Answer 7

Holding period return = return earned over period investment wad held = [income +(end val - initial val)] / initial val

Answer 8

A baso : excess return comparved to gov bond/total risk calc of risk adjusted return uses total risk - assumes no diversification higher = greater risk adj return - better sharpe ratio = (portfolio return - risk free return)/ portfolio stnd dev risk free = gov bond stnd dev = total risk

Answer 9

excess return compared to gov bond/market risk (portfolio return - risk free)/beta of portfolio type of risk adjusted return systematic risk only, assumes diversification higher = better

Answer 10

type of risk adj return for active funds baso avg alpha/SD of alpha = (portfolio return - benchmark return) / tracking error higher = better

Answer 11

SRRI - included in KID required by UCITS and PRIIP risk reward measure, 1-7 score of volatility of returns (measured using NAV) over 5 years lower score = lower risk(/reward)

Answer 12

buy and hold - infrequent adjustments, holding to mat then replace with similar indexation full rep - market cap weighted call constant stratified samp - representative sample - sampling error optimisation - mimic index characteristics synthetic - swaps to track return factor matching - secs selected based on chosen factors or risk

Answer 13

duration switching - alters with expected changes in interest rate cash flow matching immunisation (duration matching) laddering - buying bonds with range of maturities reducing Interest rate risk bullet portfolios - durations close to liabilities barbell - both short and long dated either side of liability combination matching - matching early liabilities with cash flows and later with immunisation strat

Answer 14

MV = PT The real money supply is the total amount of money in the economy, adjusted for inflation by dividing by the average price of each transaction (M/P).

Answer 15

Bootstrapping is the practice of self-financing a business w/out involving outside investors

Answer 16

no tax on gains until chargeable event - taxed in year of event can removed 5% per year and defer tax 20% tax already deducted so given tax credit - only HR and AR taxpayers have additional liability can lead to tax paid at higher rate than if gains assessed annually - top slicing = remedy occurs when gain takes indiv into HR/AR bracket if chargeable gain takes income above 100k - PA not reduced chargeable gain = cash in val + any 5% withdrawals - orig investment divide gain by no. of years invested (top slicing) add val yearly income - if basic then no additional liability if HR/AR - tax amount above basic at 20%/25% multiply liability by no. of years invested

Answer 17

EIS - £1 mil - 30% - 3 years - no CGT- no IHT if held >2 years before death carry back tax relied loss relief VCT - 200k - 30% - 5 years no divi tax, no CGT, yes IHT no tax relief carry back

Answer 18

class 1 prim = employees classs 1 sec - employers class 2 - self employed profits under 6723 class 3 - vol class 4 - self employed prof over 11909

Answer 19

removes MWRR cash flow distortion by breaking up investment period into sub periods at each cash flow TWRR = EV1/SV1 * EV2/SV2 * EVn/SVn -1 EV = end val SV = start val

Answer 20

20%, 40% or 45% depending on marginal rate annual allowance for £40,000 lost £1 for every £2 earned over £200k down to min of £4,000 @salary of £272,000

Answer 21

company scheme - members usually directors set uo by trust deed tax relief higher of 3600/100% UK earnings schemes under 12 members - exempt from trustees understanding of pensions act 2004 can borrow - can't exceed 50% of net market val of scheme - secured - no longer than 5 year term - interest >1% above bank rate shareholdings in sponsoring employer not >5% total shareholdings of sponsoring employers not >20%

Answer 22

ALL NO CGT eq CIS 20% income, SD debt CIS 20% income, SD on eq ITC 19% CT, SD on income REIT no income (90% prof redistributed), SDLT income VCT 19% CT, SD

Answer 23

eq CIS gross DIV, GCT, no stamp duty debt CIS gross savings, CGT, no stamp duty ITC gross div, CGT, stamp duty (listed comp) REIT BR net non saving, CGT, stamp duty VCT no IT, no CGT, stamp duty on sale hold for 5 years

Answer 24

lifetime annuity - contract between insurance comp and pension scheme member, member hands over all/part of fund and insurance pays income for rest of life. can be fixed or index linked - can be set up so annuity is fixed term even if member dies impaired life annuity - higher amount to those with med conditions - reduced life expectancy enhanced annuity - avail for smokers, overweight people, hazardous jobs - higher income lower life expectancy deferred annuity - pensions under an occ scheme bought out with a deferred annuity - covered by FSCS in case of bankruptcy

Answer 25

bonds that pay variable interest linked to economy rate e.g SONIA, SOFR regularly adjusted prices are less sensitive to changes in interest rates than fixed bonds - good during periods of IR volatility

Answer 26

premium buys policyholder units in fund through a life company - policy val measured in no. of units value can be fully linked to underlying funds can have 'min sum insured'

Answer 27

offer benefit payable at some future date (or death or encashment) policyholder receives sum insured + any profits made by life company shared through bonuses - reversionary bonus - paid yearly terminal bonus - awarded at maturity or death lower volatility that with reg investments as bonuses are smoothed (some profit in good years half back to pay out in bad years)

Answer 28

distribution bonds separate income and capital unlike unit linked bonds income from fund is placed in separate fund that can thence distributed regularly - investor can then encase units representing just the income portion of the bond

Answer 29

tax relief at MR contributions treated as net of basic and HR/AR can claim addition relief annual allowance is 40,000 gross - any contributions above are taxed at MR adjusted income - total taxable income before allowances less reliefs threshold income = same but without pension contributions allowance down £1 for every £2 earned above adjusted income 240k or threshold income £200k down to min of £4,000

Answer 30

long call - holding call. think prices rising. max profit unlimited, max loss = premium short call - writing call, think prices falling. max profit premium, max loss is unlim long put -holding put, think prices falling, max profit = strike- prem. max loss= premium short put - writing put, think prices rising. max profit = prem, max loss = strike - prem

Answer 31

model that aims to explain main factors of funds return Macro– factors such as inflation, interest rates, employment Fundamental – factors such as earnings, dividend yield Statistical – other factors such as using stock market indices

Answer 32

CAPM - single factor (B) and more restrictive assumptions APT multi factor, more accurate, less assumptions factors can be correlated :( applies separate risk premium and separate beta to each factor

Answer 33

fundamental - used to find intrinsic val -compare to market val to see if over or under priced - analysing fundamentals (company, management, financials), macro technical - doesn't try to find intrinsic value - uses past prices to gen pricing patterns and buy/sell signals assumes -market discounts everything - prices move in trends - history repeats itself

Answer 34

= (gross rent - expenses) / (cost of prop including purchasing costs)

Answer 35

current annual rent / val of prop incl purchasing costs

Answer 36

ratio used to estimate val of income producing prop = net op income / sales price or val of prop

Answer 37

employers responsible for calculating deducting and paying 13.25%: £242 - £967/week +3.25% xs of 967/week

Answer 38

class 2 flat rate: £3.15 earnings are above the small profit threshold of £6,725 per year. Class 2 NICs do not count towards the additional state pension, statutory sick pay or jobseeker’s allowance. Class 4 NICs 10.25% on annual profits £12,570 - £50,270 3.25% on any profit over that amount. Class 4 NICs do not count towards benefit entitlements.