Definitions

Question 1

P/E ratio

Answer 1

Price to earnings ratio -

(Current market price of share) / (EPS)

“compares the company’s share price with its earnings per share”

Question 2

EPS

Answer 2

Earnings per share -

Profit) / (Number of shares

Question 3

Convertible loan stock

Answer 3

“A type of loan stock which can be directly converted to common shares under specified conditions and with a predetermined conversion rate.”

Fixed interest investment that can be converted into shares.

Question 4

FRN

Answer 4

Floating Rate Note -

A bond
Issued by companies
Interest not fixed
Rather, linked to a money market rate like SONIA

Question 5

SONIA

Answer 5

Sterling Overnight Interbank Average Rate

Question 6

SDLT

Answer 6

Stamp Duty Land Tax -

No SD is paid if no land transfer takes place.

Question 7

SDRT

Answer 7

Stamp Duty Reserve Tax -

Government taxes charged on the transfer of UK-registered shares bought electronically through CREST

Question 8

CREST

Answer 8

Certificateless Registry for Electronic Share Transfer

Question 9

Stock transfer form

Answer 9

A means of purchasing shares. If used, SD (not SDRT) is paid when shares worth over £1000 are purchased.

Question 10

Running yield

Answer 10

Interest -

The income return an investor receives on the amount paid for a bond

Question 11

Redemption yield

Answer 11

Measures the capital and income return on a particular share until wind up, expressed as an annual percentage.

The total amount of money you’ll get from this bond between now and it’s redemption.

Question 12

Cum dividend

Answer 12

(With) When you pay for a bond + all the interest accrued since the start of this period.

Question 13

Ex dividend

Answer 13

When you buy a bond within the 7 working days between interest registration and payment. You are compensated for this.

Question 14

Clean price

Answer 14

The price of a bond without considering any accrued interest. This is what is quoted on the financial times

Question 15

Mid-price

Answer 15

The price at the mid-point between the buying and selling prices of a bond on the market. An investor would pay a higher price to purchase a bond and receive a lower price to sell one.

Question 16

Dirty price

Answer 16

The total amount paid by the purchaser of a bond. The clean price +- interest adjustment.

Question 17

Dividend cover

Answer 17

Measures how many times the dividend could be paid out of the available current earnings. It indicates the margin of safety that a company has in paying it’s dividends.

Question 18

FTSE All-share

Answer 18

Tracks FTSE 100, 250, and SmallCap.

Question 19

Rent-a-room relief

Answer 19

Individuals who receive rent from letting rooms in their own homes are entitled to a special exemption from tax. £7500 p.a. Tax free

Question 20

Property income allowance

Answer 20

An annual £1000 allowance in which property income is exempt from tax

Question 21

Property income tax

Answer 21

20% tax
If rent a room relief - £7500 allowance
If not - £1000 allowance

Question 22

M0

Answer 22

“Narrow money” - A measure of notes & coins in circulation + banks’ operational deposits with the BoE

Question 23

M4

Answer 23

“Broad money” - A measure of notes & coins in circulation + all instant access and deposit accounts of UK residents

Question 24

MPT

Answer 24

Modern Portfolio Theory -

Maximises returns and minimises risk.
You must also consider correlation.

Question 25

CAPM

Answer 25

Capital Asset Pricing Model - Because non-systematic risk can be eliminated by diversification, it isn't rewarded.

Question 26

APT

Answer 26

Arbitrage Pricing Theory - Share pricing using risk factors and betas

Question 27

Modified duration

Answer 27

The measure of sensitivity of a bond or portfolio of bonds to a move in interest rates.

Question 28

Replication

Answer 28

Fully replicating the stocks in an index and rebalancing when necessary.

Question 29

Stratification

Answer 29

Where a sample of shares held in an index are purchased by a fund manager.

Question 30

Stochastic modelling

Answer 30

``` "A mathematical technique" used to "generate a probabilistic assessment" of "returns and volatility." ```

Question 31

Levy

Answer 31

To impose a tax, fee, or fine.

Question 32

TER

Answer 32

Total Expense Ratio - OCF + AMC + other charges

Question 33

Fettered

Answer 33

A fund of funds which only invests in funds run by the same management group (e.g. Vanguard)

Question 34

Par value

Answer 34

The amount received by the investor at maturity of a bond

Question 35

Treasury bill

Answer 35

Issued weekly by governments through the DMO to finance short term-cash needs.

Question 36

Index linked GILT

Answer 36

A conventional gilt but the coupon payments and capital repayment are adjusted in line with RPI inflation.

Question 37

Debenture

Answer 37

“A secured loan agreement” with “business assets used as security.”

Question 38

Non-voting shares

Answer 38

Ordinary shares but no voting rights and therefore typically cheaper

Question 39

Financial Repression

Answer 39

When interest rates are lower than inflation

Question 40

PSNCR

Answer 40

Public Sector Net Cash Requirement - A recession leads to a higher requirement of cash

Question 41

Efficient Market Hypothesis

Answer 41

The hypothesis that you can't consistently outperform the market.

Question 42

Bail-in-risk

Answer 42

Risk of a bank failing

Question 43

Hurdle Rate

Answer 43

The growth needed to pay: - purchase price, - the pre-determined redemption value, - or value at round-up

Question 44

Split-Capital Investment Trust

Answer 44

An Investment Trust which can split the capital across share classes

Question 45

Pound-cost averaging

Answer 45

Like phasing but for regular premium bonds/contracts

Question 46

Maximum Investment Plan

Answer 46

Some sort of regular premium plan

Question 47

SAYE

Answer 47

An investment vehicle which, on maturity, can be transferred to an ISA without realising a gain for CGT purposes

Question 48

ETN

Answer 48

Exchange Traded Note - A bond. Not fixed interest, instead linked to an index. Has a maturity date.

Question 49

ETF

Answer 49

Exchange Traded Fund Index tracking fund Traded like a collective but as a single share Updated throughout the day

Question 50

Uncovered call

Answer 50

A call over assets which you don't own

Question 51

Socially Responsible Investing

Answer 51

The generic name given to ethical investing

Question 52

Mental accounting

Answer 52

When a portfolio is being arranged to meet more than one objective

Question 53

Strategic Asset Allocation

Answer 53

Choosing the asset classes

Question 54

Tactical Asset Allocation

Answer 54

Choosing the funds within the asset classes

Question 55

Growth at a reasonable price

Answer 55

The name given to investing in companies with long-term sustainable advantages

Question 56

Commercial bill

Answer 56

A debt instrument Issued by companies Fund short term cash needs Like treasury bills