Calculations Flashcards

Question

Compound interest

Answer 1

P (1 + r / n) power n

Answer 2

If a trust has a hurdle rate of 3.5% and asset cover of 0.9 what does this tell you about the trust? The trust needs to grow by 3.5% per year if it is to meet its liabilities at the end of its term. At present its assets only cover 90% of its liabilities.

Answer 3

Must report all income Must apply annually for Reporting Fund Status Dividends are paid to investors gross. Capital Gains made by the individual investor are subject to CGT and annual exemption applies along with other gains made Distributor status is given annually Taxed as normal

Answer 4

Income is accumulated Gain on disposal are taxed as Income tax and therefore no annual exemption can be utilised Gain = sale proceeds less purchase price Taxed as income tax and therefore up to 45% No CGT to pay so no offset permitted

Answer 5

Fund taxed on income and gains at an assumed rate of 20% No further tax payable on encashment providing the policy has been in force for 10 years or 3/4 of the term if sooner. Maximum that can be paid into a qualifying policy is £3,600. To be classed as qualifying it must meet the criteria: - Must secure a capital sum on maturity, death or earlier disability. - Premiums must be payable annually or more frequently. - Premiums must be paid for at least 10 years or until earlier death. - For term assurance policies the sum assured must not be less than 75% of the premiums payable during the term of the policy. - For whole of life policies the sum assured must not be less than 75% of the total premiums payable should death occur at age 75. - Premiums payable in any one year must not be more than 1/8th of total premiums payable in any other year.

Answer 6

Premiums of a policy must not exceed £270 per annum (for annual premiums) or £300 per annum for more frequent premiums (£25 per month or £5.70 per week). These contribution limits are applied to the total plans held by an investor. Policies are available from age 18 to a maximum age of 70 in the individual's own name. Policies can be taken out for children from birth.

Answer 7

Policies which do not meet the qualifying criteria are called non-qualifying policies. All single premium bonds are non-qualifying as they do not meet the requirement of regular premiums. With non-qualifying policies there is the possibility of a tax liability for policyholders in the higher rate tax brackets when a chargeable event occurs. Tax is charged at 20% of the net gain for higher rate tax payers and 25% of the net gain for additional rate tax payers. Any gain may also affect any entitlement to income related allowances/benefits. Bond holders are allowed to withdraw up to 5% of their original capital each year, for a maximum of 20 years, without incurring an immediate tax charge. This is known as taking 'tax deferred income'.

Answer 8

D - Death A - Assignment for money M - Maturity E - Excess on partial surrender over 5% S - Surrender

Answer 9

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Answer 10

Pay net income Additional tax due on net income Can offset expenses against tax bill Fund rolls up net Fund benefits from indexation relief

Answer 11

Pay gross income Additional tax due on gross income No tax bill to offset expenses against Fund rolls up gross Withholding tax on non-UK dividends is non-reclaimable

Answer 12

In a PAIF, rental profits and property related income is ring-fenced and exempt from corporation tax. It is distributed to the investor net of 20% tax. Non tax payers can reclaim this. Higher and Additional rate tax payers must pay an extra 20% and 25% of the gross income respectively.

Answer 13

An investor who has realised a gain from an investment can get CGT deferral relief if he invests the gain within the timeframe of 12 months before the gain arose and 35 months afterwards. Under an EIS the investor may also obtain income tax relief at 30% on the amount invested up to a total of £1,000,000 for shares issued in any one tax year. Relief can be claimed up to a maximum of £2m, providing any amount in excess of £1m is invested in knowledge-intensive companies and the investor has income tax liability of at least the amount being claimed. Must be held for 3 years. Dividends taxable. CGT on disposal free after 3 years.

Answer 14

Tax relief is given at a rate of 50% on investments up to £100,000 with the same requirement to hold the shares for three years and the other reliefs being the same as those for EIS.

Answer 15

VCT's are companied listed on the London Stock Exchange. Income tax relief is available at a rate of 30% in the tax year when the investment is made into VCT shares. The maximum amount which can attract this relief is £200,000 and the shares must be held for 5 years. Dividends not taxable. CGT free on disposal from outset. No CGT deferral relief on initial investment.

Answer 16

There are 3 types of CTF account: 1. Savings 2. Share accounts 3. Stakeholder accounts Contributions can be made to existing CTFs by parents, relations and friends of up to £9,000.

Answer 17

The holding period return allows comparisons of returns to be made between different investments over the same time period. placeholder

Answer 18

The Sharpe ratio is a measure of the risk adjusted return of an investment. It measures the excess return for every unit of risk that has been taken in to achieve the return. (Return on the investment - risk free return) / Standard Deviation of the return on the investment

Answer 19

a = actual portfolio return - (Rf + Bi (Rm - Rf)) Rf - Risk free rate of return Bi - Beta of the fund or portfolio Rm - Market return

Answer 20

Rp - Rb / Tracking error Rp - Portfolio return Rb - Benchmark return

Calculations Flashcards

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