Topic 7 Other Direct Investments Flashcards
What are Equities/Ordinary shares?
Most important type of shares issued by a UK company
Most Equities are bought by who?
- Institutions
- Life funds
- Pension funds
- Ownership
- Debt
Are what?
What financial assets are divided into
What is the name of the document that would enable investors to look at the right to shares in a company?
Articles of Association
Where can Articles of Association be viewed?
- The company’s registered office
- Companies House
What are the 4 factors that affect share prices?
- Company profitability
- Supply & demand for shares/Investments
- Strength of the market sector
- Strength of the UK & global economy
In the long term what has provided more returns investments in Deposits or Equities
Equities
Where are shares bought and sold?
London Stock Exchange (LSE)
The 2 main markets of the LSE are?
- Main Market
- Alternative Investment Market
The FCA controls what in relation to companies on the main market?
UK Listing Authority (UKLA)
For a company to be listed to trade on the main market how many years must it have been trading for?
3 years
For a company to be listed to trade on the main market how much of it’s issued share capital must be in public hands?
25%
What is the Primary Market?
Where companies and Financial Organisations raise funds by selling new securities to investors
What is the process called when a company trades on the stock market?
“Going public” or “Floating”
What is a advantage of a company going public?
Shares can be traded with greater ease
What is the Secondary Market?
Where investors buy and sell excising securities
Which market trades more securities in a day?
Primary or Secondary?
Secondary Market
What is the Alternative Investment Market (AIM)?
Market aimed a new small businesses to raise capital and public awareness and enhance profiles
Are rules for joining the Alternative Investment Market as strict as the Main Market?
No the rules are less strict
What are the Share Indices?
- FTSE 100 Index
- FTSE 250 Index
- FTSE 350 Index
- FTSE All-Share Index
Which share index is defined as?
Largest 350 companies by capitalisation. Incud FTSE 100 & FTSE 250
FTSE 350
Which share index is defined as?
- 600 shares
- Split into sectors
- Measures price movements and return on shares
FTSE All-Share Index
What is the definition of Market Capitalisation?
A company’s market value which is the number of shares in issue mutliped their share price
- Individual & Institutional investors, Pension funds
- Bank & Other Traders
- Governments & Public Corps
- Investment Banks
Participants in the markets
What is “ Over the counter trading” (OTC) or “Dark Pools”
Deals between institutions for large block of securities that have very little public knowledge
How is “ Over the counter trading” (OTC) or “Dark Pools” being stopped
New reporting requirements are being implemented
Why are Dividends paid half yearly?
Admin involved in giving shareholders their dividends is time consuming
- Growth in share price (share capital)
- Dividend as income
Are what?
What shareholders hope to get from their shares
Earnings per share is what?
A company’s net profits divided by the number of shares
What is Dividend Cover?
The amount of profits paid out as distribution
What is acceptable to investors as a dividend distribution?
2.0 or more
If an investor received 1.0 or less what would it mean?
That the company was paying out of it’s retained profits
What is Price/Earnings Ratio?
Earnings per share dividend by share price
Are Dividends paid with tax deducted?
No they are paid gross of tax
What are Rights Issues?
When a company issues new shares it must first offer the new shares to existing shareholders
How are Rights Issues offered?
Normally at a discount price
What happens if a shareholder does not want to take the rights offer?
They can sell the rights to another shareholder and keep the sale proceeds. To compensate for the share disillusion they will suffer.
What are Scrip Issues?
A free of charge issue of additional shares to existing shareholders
How are Scrip Issue shares created?
Transfering company reserves into company share account. This reduces share prices
How are Preference Shares different from Ordinary Shares?
Dividends that are paid at fixed rate and are payable ahead of ordinary shareholders
What does it mean if a preference share is cumulative?
That if a dividend is not paid entitlement is accumulated until they can be paid. This total is accumulated from the years that dividend couldn’t be paid
What are Convertible Preference Shares?
Shares that can be converted to ordinary shares of a company
What is a warrant?
Enables the holder to buy shares at a set price and on an agreed date, regardless of what the share is trading at
What are the benefits of Property Investment?
- Can be used as form of security
- UK property market is developed and professional
Downsides of property investment?
- Location is key
- Economic conditions may affect lettings & property values
- Property is less liquid (money is tied up)
For people with less funds and less risk what investment in property may be more appropriate?
Property Bonds
What makes BTL’s attractive to investors?
- Regular Income stream
- Easy access to BTL mortgages
- Well Developed Markets
- Easy access to lettings/ property management agents
These are all what?
- Property Investment is illiquid
- Can be unlet for a while
- property can be damaged by bad tennants which may lead to legal charges
- Property maintenance costs
- Accessing the market can be difficult
Disadvantages of BTL mortgages
What have the government done to reduce BTL attractiveness?
Tax Relief Now is only 20% of interest at basic tax rate
Wear & Tear Allowance Replaced by Furniture Replacement allowance which allows on the cost of replacing a furniture
SDLT 2nd properties subject to surcharge purchase
- Individual Retail Units
- Shopping Centre/arcades
- Offices
- Industrial Units
- Hotel/Leisure Facilities
- Mixed use property
Examples of commercial properties
All the below are what?
- Regular rent reviews
- Longer leases
- More stable longer-term tennants
- Lower initial refreshment costs
Advantages of Commercial Properties
All the below are what?
- Higher value makes spreading risk more difficult
- Does not show dramatic growth like residential property
- Commercial rates may be larger
Disadvantages of Commercial Properties
What should lenders look out for with commercial property?
- Quality of the land
- Reputation of the building professionals
- Suitability of likely tennants
What is the IHT relief for an owner occupied agricultural property?
100%
What is the IHT relief for a let out agricultural property?
50%
How is dividend cover calculated?
Net profits / dividend paid
What are Money Market Instruments?
Short term debt that pays no interest during the term of the transaction
How is the interest on Money Market Instruments calculated?
Amount Invested/ Amount Repaid
What are Treasury Bills?
Short term shares issues by the treasury
Which office of the Treasury issues Treasury Bills
Debt Management Office (DMO)
How long is a Treasury Bill issued?
91 days
What does Zero-Coupon Security mean?
Interest is not paid on a loan
How are Treasury Bills Issued?
At a discount rate to the par value which is redeemed on redemption
Who is normally most attracted to Treasury Bills?
Large organisations
What are Certificates of Deposit?
Issued by banks/building societies to investors to confirm a deposit has been made to them
When is interest paid on a Certificate of Deposit?
At the end of the term
What is the typical length of a Certificate of Deposit?
3-6 months
Can Certificate of Deposits be rolled over?
Yes for another 3-6 months under specified terms
What is the typical amount for a Certificate of Deposit
£50,000 or more
What happens if an investor requires their funds back on a Certificate of Deposit?
They can expect withdrawal penalties
Can Certificate of Deposits be sold?
Yes to a 3rd party
What is Commercial Paper?
Unsecured promissory note to repay funds received in exchange for Commercial Paper
Commercial Paper involves larger amounts of borrowing?
True or False
True
Can a company with a bad credit rating issue Commercial Paper?
Yes if they have a letter from an bank offering to cover the Commercial Paper if they default
What is the normal length of a Commercial Paper?
5 - 45 days
Why would Commercial Paper be rolled over?
- Flexibility
- Not a long period of fixed interest
Why would a company offer Commercial Paper?
It is a cheaper form of borrowing
What is a Bearer Security?
Security owned by whoever possess the document
Direct Investments are risky for investors because?
- Companies can fail without return of capital
- Difficult to spread risk
What is the FTSE 250 defined as?
Next 250 companies after the FSTE 100
What is tax credit on BTL mortgages?
20% on the interest paid at basic rate tax
