Equities

Question 1

4 basic rights of shareholders

Answer 1

Receive accounts
Attend and vote
Share profits
Paid on wind up

Question 2

4 Stat rights of shareholders

Answer 2

AGM one pa
10% EGM
5% propose resolution
Petition the court

Question 3

Offer for sale fixed price (4)

Answer 3

Large stable cos

Pre determined price

institutions agree to buy at the offer price any shares that are not sold.

offer price set slightly under to encourage oversubscription to put upward pressure on the share price after issue.

Question 4

Offer for sale - Tender price (5)

Answer 4

Difficult to price accurately so:

When inviting bids, a minimum ‘indicative’ price is usually stipulated

Book building - invite institutions only

Strike price - lower but not as many shares

Price bid - get as many as bid for

Question 5

Offer for subscription (2)

Answer 5

Used by new ventures eg investment trust

Tender bids but does not go through unless certain demand met

Question 6

Placings (2)

Answer 6

Fastest/cheapest

Decide price then approach institutions

Question 7

Introductions (3)

Answer 7

Foreign cos and large privates

Get authorised -> no new shares, no new money

Can now trade on exchange

Question 8

Demutualisation process (2)

Answer 8

reserves were used to pay for the free shares issued to members

simultaneously gained a listing on the stock exchange

Question 9

what is deemed best execution for retail and professional client?

Answer 9

Total consideration

Question 10

Give 3 reasons for a rights issue:

Answer 10

funding specific expansion plans

strengthening the balance sheet

refinancing the company after a crisis,

Question 11

Why must rights issues be offered to existing shareholders?

Answer 11

the value of their investment could
be diluted

Question 12

What is the ex rights price?

Answer 12

Reduced price after rights issue

Question 13

What is the rights premium?

Answer 13

ex rights minus rights price i.e what each right is worth

Question 14

Why do companies do a bonus issue?

Answer 14

bring the company’s share capital in line with its real
worth

reduce the share price to make it more marketable.

Question 15

How do share splits differ from bonus issues?

Answer 15

without the transfer from revenue reserves - increases share value by splitting the par value

Question 16

How do capital reorgs give excess capital back to SH?

Answer 16

For each existing holding of ten oldordinary shares, instead it issues nine new
ordinary shares and ten new B shares.

The B shares are redeemable preference shares to realise the return of capital.

Result: Reduce ord shares by 10%, pays out 10%

Question 17

3 main equity risks

Answer 17

price
liquidity
issuer

Question 18

6 factors affecting share price

Answer 18

profit expectations
investor sentiment
External economic
Dividend expectations
takeover activity
management track record

Question 19

Who regulates floating of cos?

Answer 19

UKLA

Question 20

Do you pay stamp duty on aim?

Answer 20

No

Question 21

When is stamp duty paid?

Answer 21

0.5% on over paper £1,000 at 0.5% (rounded up to £5)

Question 22

When is SDRT paid?

Answer 22

0.5% on first paid made through CREST

Question 23

What is the PTM levy?

Answer 23

£1 on all trades over £10,000

Question 24

Ordinary b shares?

Answer 24

redeemable shares issued as part of a capital return to
shareholders.

Question 25

Deferred shares?

Answer 25

founders of a company and only pay a dividend after a certain period of years or once all other dividends have been paid.

Question 26

Cumulative preference shares?

Answer 26

the dividend is not paid, the right rolls over and arrears have to be paid before any ordinary dividends.

Question 27

Participating preference shares?

Answer 27

additional dividends may be paid if the company exceeds certain levels of profit.

Question 28

Redeemable shares?

Answer 28

they may be issued with a specified redemption date when the company will pay the nominal value.

Question 29

Convertible shares?

Answer 29

conversion rights allowing the preference shares to be converted into ordinary shares.

Question 30

A shares?

Answer 30

non voting ordinary shares

Question 31

what are dividend tax rates?

Answer 31

Tax band Tax rate on dividends over £1,000 Basic rate 8.75% Higher rate 33.75% Additional rate 39.35%

Question 32

7 risks of shares

Answer 32

Regulatory risk Liquidity risk Fund managers and insurance cos Dividend volatility Currency risk Counterparty risk Capital risk