Equities And Property Flashcards

1
Q

What is an equity?

A

Part ownership of a company’s capital
Investors hope to receive income from dividends and capital growth
To offer shares to general public, usually needs to be listed on stock exchange

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2
Q

What could a share price be affected by?

A

Economic / political factors e.g. inflation, productivity, growth and government policy (fiscal and monetary)

Investor sentiment e.g. investors may be optimistic or pessimistic

Business specific factors: profit / dividend expectations, takeover activity and quality of management

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3
Q

When a company obtains a stock market listing, it is known as an initial public offering. What are the 3 main types of IPO?

A

Introductions (introduced to the exchange)

Placings (with big institutions)

Offers for sale (at a fixed price)

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4
Q

Describe AIM

A

Provide primary and secondary market functions to companies too small or new to have full stock market listing

Properly regulated but less onerous listing requirements

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5
Q

Costs of buying / selling shares

A

Commission charged on purchases and sales
Stamp duty / SDRT in transfer of UK shares
0.50% by purchases
Stamp duty rounded to nearest £5
SDRT rounded to nearest penny
No SDRT or stamp duty on shares on AIM
Panel on Takeovers & Mergers levy - flat charge of £1 on all trades over £10,000

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6
Q

Types of preference share (5)

A

Cumulative - will be cumulative unless specified and any dividend shortfall carried forward must be paid before dividend declared to ordinary shareholders

Non-cumulative - lose right to unpaid dividends at end of financial year

Participating - pays fixed rate of dividend and allowed to participate in profits of company

Redeemable - at specified predetermined date

Convertible - can be converted to ordinary shares

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7
Q

Types of ordinary shares

A

Non voting

Deferred - don’t usually qualify for dividend until dividends reach a predetermined level

Alphabet - A ordinary share vs B ordinary share vs C ordinary share - different rights regarding dividends, capital and voting rights (set out in Articles of Association)

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8
Q

Examples of corporate actions

A

Rights issues - to fund expansion plans / strengthen balance sheet / refinance company after crisis

Bonus shares / scrip issue - used to bring share capital more in line with real worth - reduces share price to make it more attractive

Share splits - achieves lower share price by increasing number of shares in issue by splitting par value

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9
Q

Risks of equity

A

Liquidity risk - potential inability to realise investment
Counterparty risk - organisation investment placed with fails
Volatility risk - value / dividends can fluctuate
Capital risk - share price depends on supply and demand
Currency risk - investments denominated in another country
Regulatory risk - inadequate regulation of markets

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10
Q

How to diversify equities

A

Across individual shares
Across sectors
Across international markets

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11
Q

What is an index and what is it used for?

A

Provides a means of measuring performance of a portfolio of shares over time

Indices used to:
Compare particular share to overall market
Compare fund managers performance to overall market performance

Eg FTSE 100, FTSE 250, FTSE AIM

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12
Q

Limitations of indices

A

Weighted by market capitalisation - a few companies can have substantial effects

Costs - no account for tax, buying/selling costs or management expenses

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13
Q

Disadvantages of direct property investment

A

Lack of liquidity
High costs
Self manage or use agent?
Void periods

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14
Q

Factors to take into account when choosing a property

A

Location
Tenant availability
Tenant quality
Age and condition - newer property preferable for renting
Diversification - if in same area, risks concentrated

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15
Q

Gross rental yield

A

Gross rent / market price

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16
Q

Net rental yield

A

(Gross rent - expenses) / (market price - cost of buying)

17
Q

What is rent a room relief

A

Letting furnished rooms in main residence
Individual must also occupy property at same time
No tax if gross rent is below £7,500
One exemption per residence