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CeMAP Unit 1 > Topic 7 Other Direct Investments > Flashcards

Topic 7 Other Direct Investments Flashcards

1
Q

What are Equities/Ordinary shares?

A

Most important type of shares issued by a UK company

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2
Q

Most Equities are bought by who?

A
  • Institutions
  • Life funds
  • Pension funds
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3
Q
  1. Ownership
  2. Debt

Are what?

A

What financial assets are divided into

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4
Q

What is the name of the document that would enable investors to look at the right to shares in a company?

A

Articles of Association

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5
Q

Where can Articles of Association be viewed?

A
  1. The company’s registered office
  2. Companies House
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6
Q

What are the 4 factors that affect share prices?

A
  1. Company profitability
  2. Supply & demand for shares/Investments
  3. Strength of the market sector
  4. Strength of the UK & global economy
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7
Q

In the long term what has provided more returns investments in Deposits or Equities

A

Equities

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8
Q

Where are shares bought and sold?

A

London Stock Exchange (LSE)

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9
Q

The 2 main markets of the LSE are?

A
  1. Main Market
  2. Alternative Investment Market
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10
Q

The FCA controls what in relation to companies on the main market?

A

UK Listing Authority (UKLA)

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11
Q

For a company to be listed to trade on the main market how many years must it have been trading for?

A

3 years

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12
Q

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?

A

25%

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13
Q

What is the Primary Market?

A

Where companies and Financial Organisations raise funds by selling new securities to investors

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14
Q

What is the process called when a company trades on the stock market?

A

“Going public” or “Floating”

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15
Q

What is a advantage of a company going public?

A

Shares can be traded with greater ease

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16
Q

What is the Secondary Market?

A

Where investors buy and sell excising securities

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17
Q

Which market trades more securities in a day?

Primary or Secondary?

A

Secondary Market

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18
Q

What is the Alternative Investment Market (AIM)?

A

Market aimed a new small businesses to raise capital and public awareness and enhance profiles

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19
Q

Are rules for joining the Alternative Investment Market as strict as the Main Market?

A

No the rules are less strict

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20
Q

What are the Share Indices?

A
  1. FTSE 100 Index
  2. FTSE 250 Index
  3. FTSE 350 Index
  4. FTSE All-Share Index
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21
Q

Which share index is defined as?

Largest 350 companies by capitalisation. Incud FTSE 100 & FTSE 250

A

FTSE 350

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22
Q

Which share index is defined as?

  • 600 shares
  • Split into sectors
  • Measures price movements and return on shares
A

FTSE All-Share Index

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23
Q

What is the definition of Market Capitalisation?

A

A company’s market value which is the number of shares in issue mutliped their share price

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24
Q
  1. Individual & Institutional investors, Pension funds
  2. Bank & Other Traders
  3. Governments & Public Corps
  4. Investment Banks
A

Participants in the markets

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25
Q

What is “ Over the counter trading” (OTC) or “Dark Pools”

A

Deals between institutions for large block of securities that have very little public knowledge

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26
Q

How is “ Over the counter trading” (OTC) or “Dark Pools” being stopped

A

New reporting requirements are being implemented

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27
Q

Why are Dividends paid half yearly?

A

Admin involved in giving shareholders their dividends is time consuming

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28
Q
  1. Growth in share price (share capital)
  2. Dividend as income

Are what?

A

What shareholders hope to get from their shares

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29
Q

Earnings per share is what?

A

A company’s net profits divided by the number of shares

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30
Q

What is Dividend Cover?

A

The amount of profits paid out as distribution

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31
Q

What is acceptable to investors as a dividend distribution?

A

2.0 or more

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32
Q

If an investor received 1.0 or less what would it mean?

A

That the company was paying out of it’s retained profits

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33
Q

What is Price/Earnings Ratio?

A

Earnings per share dividend by share price

34
Q

Are Dividends paid with tax deducted?

A

No they are paid gross of tax

35
Q

What are Rights Issues?

A

When a company issues new shares it must first offer the new shares to existing shareholders

36
Q

How are Rights Issues offered?

A

Normally at a discount price

37
Q

What happens if a shareholder does not want to take the rights offer?

A

They can sell the rights to another shareholder and keep the sale proceeds. To compensate for the share disillusion they will suffer.

38
Q

What are Scrip Issues?

A

A free of charge issue of additional shares to existing shareholders

39
Q

How are Scrip Issue shares created?

A

Transfering company reserves into company share account. This reduces share prices

40
Q

How are Preference Shares different from Ordinary Shares?

A

Dividends that are paid at fixed rate and are payable ahead of ordinary shareholders

41
Q

What does it mean if a preference share is cumulative?

A

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

42
Q

What are Convertible Preference Shares?

A

Shares that can be converted to ordinary shares of a company

43
Q

What is a warrant?

A

Enables the holder to buy shares at a set price and on a agreed date, regardless of what the share is trading at

44
Q

What are the benefits of Property Investment?

A
  • Can be used as form of security
  • UK property market is developed and professional
45
Q

Downsides of property investment?

A
  • Location is key
  • Economic conditions may affect lettings & property values
  • Property is less liquid (money is tied up)
46
Q

For people with less funds and less risk what investment in property may be more appropriate?

A

Property Bonds

47
Q

What makes BTL’s attractive to investors?

A
  1. Regular Income stream
  2. Easy access to BTL mortgages
  3. Well Developed Markets
  4. Easy access to lettings/ property management agents
48
Q

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
A

Disadvantages of BTL mortgages

49
Q

What have the government done to reduce BTL attractiveness?

A

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

50
Q
  • Individual Retail Units
  • Shopping Centre/arcades
  • Offices
  • Industrial Units
  • Hotel/Leisure Facilities
  • Mixed use property
A

Examples of commercial properties

51
Q

All the below are what?

  • Regular rent reviews
  • Longer leases
  • More stable longer-term tennants
  • Lower initial refreshment costs
A

Advantages of Commercial Properties

52
Q

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
A

Disadvantages of Commercial Properties

53
Q

What should lenders look out for with commercial property?

A
  • Quality of the land
  • Reputation of the building professionals
  • Suitability of likely tennants
54
Q

What is the IHT relief for an owner occupied agricultural property?

A

100%

55
Q

What is the IHT relief for a let out agricultural property?

A

50%

56
Q

How is dividend cover calculated?

A

Net profits / dividend paid

57
Q

What are Money Market Instruments?

A

Short term debt that pays no interest during the term of the transaction

58
Q

How is the interest on Money Market Instruments calculated?

A

Amount Invested/ Amount Repaid

59
Q

What are Treasury Bills?

A

Short term shares issues by the treasury

60
Q

Which office of the Treasury issues Treasury Bills

A

Debt Management Office (DMO)

61
Q

How long is a Treasury Bill issued?

A

91 days

62
Q

What does Zero-Coupon Security mean?

A

Interest is not paid on a loan

63
Q

How are Treasury Bills Issued?

A

At a discount rate to the par value which is redeemed on redemption

64
Q

Who is normally most attracted to Treasury Bills?

A

Large organisations

65
Q

What are Certificates of Deposit?

A

Issued by banks/building societies to investors to confirm a deposit has been made to them

66
Q

When is interest paid on a Certificate of Deposit?

A

At the end of the term

67
Q

What is the typical length of a Certificate of Deposit?

A

3-6 months

68
Q

Can Certificate of Deposits be rolled over?

A

Yes for another 3-6 months under specified terms

69
Q

What is the typical amount for a Certificate of Deposit

A

£50,000 or more

70
Q

What happens if an investor requires their funds back on a Certificate of Deposit?

A

They can expect withdrawal penalties

71
Q

Can Certificate of Deposits be sold?

A

Yes to a 3rd party

72
Q

What is Commercial Paper?

A

Unsecured promissory note to repay funds received in exchange for Commercial Paper

73
Q

Commercial Paper involves larger amounts of borrowing?

True or False

A

True

74
Q

Can a company with a bad credit rating issue Commercial Paper?

A

Yes if they have a letter from an bank offering to cover the Commercial Paper if they default

75
Q

What is the normal length of a Commercial Paper?

A

5 - 45 days

76
Q

Why would Commercial Paper be rolled over?

A
  • Flexibility
  • Not a long period of fixed interest
77
Q

Why would a company offer Commercial Paper?

A

It is a cheaper form of borrowing

78
Q

What is a Bearer Security?

A

Security owned by whoever possess the document

79
Q

Direct Investments are risky for investors because?

A
  • Companies can fail without return of capital
  • Difficult to spread risk
80
Q

What is the FTSE 250 defined as?

A

Next 250 companies after the FSTE 100

81
Q

What is tax credit on BTL mortgages?

A

20% on the interest paid at basic rate tax

CeMAP Unit 1 (18 decks)

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