Invesment *G11 Flashcards
(130 cards)
1
Q
When the business compensates its shareholders for taking a risk by sharing shares (a) is declared
A
a = dividends
2
Q
Investment takes place when (a) in order to (b)
A
a = money is saved
b = make it grow
3
Q
What is the amount invested known as
A
Capital contribution
4
Q
What are the criteria when deciding in an investment opportunity *3
A
*risk
*ROI
*Timeframe
5
Q
Explain risk as a criteria when deciding on an investment opportunity
A
Risk is the possibility of losing part of investment/making profit less than anticipated
6
Q
The bigger the risk, the bigger the
A
Possible reward
7
Q
ROI is an indicator of what
A
an indicator of what the investor will get back
Therefore measures efficiency
8
Q
Explain timeframe as a criteria when deciding on an investment opportunity
A
The longer the period, the greater the risks the investor can afford to take
9
Q
What to ask when thinking about timeframe
A
Is it short, medium or long term
10
Q
What is risk profiling*
A
Where investors complete an investment risk profile* for the investor to deter main the best suited investment options*
11
Q
What does a risk profile help create
A
An understanding of investor’s tolerance
Therefore expected return
12
Q
What are issues the investor will have to include *3
A
*the time horizon of investment
*investor’s financial position
*risk tolerance
13
Q
Explain time horizon of investment
A
The longer the time horizon, the more the customer can afford low high risk investments
14
Q
Explain the financial position of the investor *2
A
When a decision is taken on the size of potential investment* relative to investor’s total net assets worth*
15
Q
Explain investment objectives and risk tolerance
A
High outcome —> high risk
16
Q
What is diversification
A
Spreading the investment risk between various asset classes
17
Q
Why should most investment plans include a combination of the four major asset classes
A
Benefits of diversification
18
Q
Investors that hold a combination of (a,b,c) stand a greater chance of higher returns than those who invest in (d) investment
A
a. Equities
b. Bonds
c. Money market instruments
d. Conservative investment
19
Q
Example of a conservative investment
A
Cash
20
Q
Sound strategy to control balance and risk = a + b + c
A
a. Growth potential of equities
b. Higher income of bonds
c. Stability of money market funds
21
Q
What are the four major asset classes
A
Cash
Property
Bonds
Equities
22
Q
Name the characteristics of cash *3
A
*cash investments offer regular interest income
*cash is a safe investment
*capital will not be subject to huge external fluctuations
23
Q
Cash includes investments such as … *3
A
Money market accounts
Bank deposits
Fixed deposits
24
Q
Safe investment definition
A
Not make or lose a fortune
25
Interest definition *2
Payment made by a financial institution* for the use of money deposited into an account*
26
What risk is guaranteed with cash and explain *2
*this investment doesn’t have potential growth potential* therefore capital sum isn't guaranteed to be protected against inflation
27
Property can be in the form of *2
*own home
*buy-to-let property
28
Property is usually the (a) asset in a person’s investment portfolio
a. Biggest
29
Property can keep up with (a) and be an effective way of (b) one’s investment
a. Inflation
b. Gearing
30
Gearing definition
Borrowed:own <——— capital
31
Property can keep up with inflation and be an effective way of gearing therefore… *2
External financing investors can increase ROI*
This is referred to as positive leverage effect*
32
What is the risk associated with property and what does it depend on *2
risk is moderate to high*
depends on economic and political environment*
33
Debt in the form of a mortgage bond can help investors acquire…
An asset
34
Drawback of property
Lack of liquidity- cannot sell it as quickly as other asset classes
35
Bonds aka
Gilts
36
Bonds definition *2
Interest bearing securities (issued by government/companies)* in order to borrow money*
37
Explain how bonds work *2
Bond issuer promises to pay regular interest* and original investment*
38
What is the risk of bonds and explain *2
*moderate risk
*capital sum investment can fluctuate while the interest payment is higher than cash
39
Equities aka *2
Shares
Stock
40
What does an investment in equities mean
Investors have obtained part ownership in the company
Therefore became shareholders
41
a company listed on a stock exchange means that
Shares can be traded freely on that stock exchange
42
What risk are equities and explain *2
*high risk
*business could flop however inflation can be beaten if invested in blue chip companies
43
Blue chip company definition
Major, stable companies
44
Investors with high risk portfolios should consider
Investing in equities
45
The longer the time before investment, …
The more one should invest in equities
46
Equities ROI
High
47
Debentures definition
Loan to a company and earn interest
48
Debentures risk and ROI
Both moderate
49
Unit trust definition
Group of investors who pool their capital to invest in financial markets
50
Unit trust risk and ROI
Risk. Moderate
ROI. High
51
Money market account meaning
A type of unit trust fund that invests interest bearing
Short time savings
52
Money market account risk and ROI
Both low
53
Retirement annuity definition
Saving plan to provide money for retirement
54
Retirement annuity risk and ROI
Risk. Low
ROI. High
55
Annuity collectibles meaning
Items that have the potential to gain capital over medium-long term
56
Annuity collectibles risk and ROI
Risk. Low
ROI. High
57
Name the investment strategies *4
Conservative
Defensive
Balanced
Growth
58
Explain conservative investment strategy *2
Investor looks for:
*high income while maintaining growth in capital
*low risk level
59
Conservative investment strategy invest more in and less in…
More in. Bonds, property and cash
Less in. Equities
60
Explain defensive investment strategy *2
Investor looks for:
*stable income but also growth in capital
*low risk
61
Defensive investment strategy invests more in and less in…
More in. Bonds, property, cash
Less in. Equities
62
Explain balances investment strategy *3
Investor looks for:
*both growth and income
*with moderate risk level
*over medium-long term
63
What does balances investment strategy invest more in *2
Equities
Bonds
64
Explain growth investment strategy *2
Investor looks for:
*long term capital growth
*high risk level
65
What does the growth investment strategy invest in
Equities
Less risky than market as a whole
66
How does the RA process work *2
Monthly premium is payed for lump sum* and monthly pension* after retirement age
67
Retirement age
55-65
68
Payments FROM RA serve as *2
*retirement income
*pension
69
In relation to RA, Amount received depends on… *2
*size of contribution
*how long contributions where made
70
RA contributions are (a) deductible
a. Tax
71
What is a pension fund *2
A form of retirement savings* when an employer organises the investment of employees retirement funds*
72
Pension contributions are deducted before calculating…
Taxable income
73
Pension fund is a common asset pool meant to *2
Generate stable growth over the long term*
Provide pensions for employees*
74
What is an endowment policy *3
A long term savings plan* when money is invested for a specific period of time* and assurer pays out maturity*
75
Most endowments offer *2
*choice of when money is invested
*risk prepared to accept
76
Companies list on stock exchange to
Gain access to more capital, but must comply with strict rules
77
Shareholder is a (a) of a company
a. Proportionate owner
78
Two methods to become a shareholder on stock market
*shares are bought when company first issued them (the person thus contributes capital)
*shares were bought from a previous shareholder
79
Shareholders invest in shares with the hope that*2
*value of shares will rise over time
*form of income by means of dividends
80
Companies distribute dividends usually
Twice a year
81
Dividend meaning
Shareholders portion of profit
82
Stock markets provide a market for dealing in
Listed shares and securities
83
Prices for financial instruments depend on
Supply and demwnd
84
Factors that affect share price *max 6 min 4
*changes in legislation
*changes in company policy
*state of economy
*global market trends
*industry performance
*financial position of business
85
Performance of stock market is gauged by
Performance of an important index
86
An index reflects…
The performance of grouping shares on the stock market
87
SA’s major index
JSE All Share Index
88
Cost of buying equities *5
*stockbroker’s fee
*marketable securities tax
*STRATE levy
*administrative costs
*VAT
89
What is S.TRA.T.E levy
Share Transactions Totally Electronic
R6 per trade
90
Bulls meaning
Optimistic investors that believe shares will go up
91
Bears meaning
Negative investors that feel shares will go down in price
92
Spread meaning
Difference between asking price and bid price
93
Market capitalisation equation
Company share price X number of shares in an issue
94
Rights offer meaning
Offer to existing shareholders to have the first option to buy new shares
95
Green chip shares
Company where pre-described requirements on environmental issues are met
96
Black chip shares
Share in company that is BEE compliant
97
Market close refers to
Prices at the end of the day for share
98
Daily move (DM) refers to
% of how much share price moved during the day
99
Dividend yield (DY) refers to
Dividend per share earned
100
Price earring ratio (PE) refers to
Share price per share
101
Day’s volume (DV) refers to
How much was traded in a day
102
What is a stop loss *3
A predetermined price* where you sell a share* to stop loss*
You decide on a loss you want to accept and sell shares
103
What is rebalancing
Investing half in equities and half in bonds and cash
104
One can buy units in a portfolio of bonds/ shares instead of
Buying bonds or shares yourself
105
What are the three parties to a unit trust investment
*unit trust management company (MANCO)
*trustee company
*unit holder
106
What does a MANCO do
Manage investments on behalf of investors
107
What does a trustee company do
Are responsible for the safekeeping of portfolio of assets
108
What is a unit holder
A person and other investors
109
What does inflation do to cash
Erode its value
110
Unit trust investment is usually a what term investment
Medium to long term
111
A bank deposit is *3
A stable* low risk income* earing interest*
112
A call account is *2
A bank account* with cash being available with a certain notice period
E.g 32 days notice before withdrawal
113
What is a fixed deposit *2
Investor invests for a fixed period of time* and may not withdraw before maturity date
114
Interest rate on a call account is higher than
A normal savings account where cash is immediately available
115
Short term investments are traded on money market and have a maturity lower than
*12 months
116
Advantages of money market funds *4
*gain access to money market instruments even after investing small amount
*can withdraw anytime
*interest rate is higher than a bank deposit
*interest rate risk is eliminated because MMF are only allowed to invest in instruments for no more than 90 dyss
117
Example of collectibles *4
Coins, stamps, diamonds, art
118
Attraction for collectibles *2
*potential of capital gains over medium to long term
*international market
119
Disadvantages of collectibles *4
*no monthly investment
*high level of expertise before trading
*gold coin value depends on good price at the time
*transportation and value difficulties
120
Off shore investments refer to
Foreign investment
121
Why include foreign components in investment portfolio *max 5 min 3
*SA as an emerging market makes its currency volatile
*diversification
*foreign markets offer better value
*international markets have more opportunities
*if you want to emigrate, you can invest in something there
122
Returns on investment are determined by *2
*price movements
*exchange rate
123
A debenture holder does not become owner of business but rather
A creditor
124
Investor of debenture receive capital investment..
Back at a pre determined date
125
Advantage of debentures
Legal obligation of of company to repay capital amount and interest
126
What does tax do to ROI
Reduces the ROI
127
The best way to understand tax on investments is to
Separate income form capital invested
128
Interest earned and dividends are added
Added to gross income and taxed
129
Capital Gains Tax comes into effect when a person
Disposes of an asset
130
Capital gain/loss is the difference between…
The difference between selling price and cost when it was purchased
