Knowledge Gaps - Cash, bonds, property & equities

Question 1

What are NS&I index linked savings certificates?

Answer 1

Lump sum invested for 5 years, guaranteed tax freereturns linked to RPI

Question 2

What are NS&I income bonds?

Answer 2

Pay monthly income and don’t have a set term, holder can take money out without notice

Question 3

Is interest taxable on income bonds?

Answer 3

Yes

Question 4

What are NS&I fixed interest savings certificates?

Answer 4

Fixed rate of return over a period of time and tax free on maturity

Question 5

What is a bond’s nominal value?

Answer 5

the amount when a bond is first issued

Question 6

How do you work out the nominal value of a bond?

Answer 6

e.g 10k x 110 (quote price)/ 100 = £11k

Question 7

What is the tax treatment of bonds held outside an isa?

Answer 7

Income is subject to income tax at marginal rates

Question 8

Are gains from disposal of a bond subject to CGT?

Answer 8

No

Question 9

What is a treasury bill?

Answer 9

Short term borrowing issued by gov for 3 months etc, very liquid

Question 10

What is a conventional bond?

Answer 10

Bonds with a fixed coupon & maturity date (4% treasury Gilt 2024)

Question 11

What are index linked gilts and how do they protect against inflation?

Answer 11

Interest & capital payments are adjusted in line with inflactio

Question 12

When are gilts shorts, mediums, longs & ultra longs?

Answer 12

Shorts - up to 7 years left
Mediums - 7-15
Longs - 15+
Ultra longs 50+

Question 13

What is the name for a corporate bond that has been secured on specific assets?

Answer 13

A debenture

Question 14

What is the differenc between a fixed & floating charge for corporate bonds?

Answer 14

Fixed - charge placed on co’s permanent assets
Floating - General charge on those which flow more generally through business (stock etc)

Question 15

What type of corporate bond is a Floating-rate
notes (FRNs)?

Answer 15

A bond which is fixed for a certain epriod, then variable

Question 16

What type of corporate bond is a convertible bond?

Answer 16

Can convert them to ordinary shares at certain points of the life of the bond

Question 17

What happens if the bondholder doesnt convert a convertible bond in the lifetime of the bond?

Answer 17

Reverts to a conventional bond that repays at a fixed date

Question 18

What type of corporate bond is a zero-coupn bond?

Answer 18

No interest paid but more will be paid on maturity

Question 19

What type of institution would issue Core capital deferred
shares?

Answer 19

A building society

Question 20

What are the two main classes of share capital for equities?

Answer 20

Ordinary shares
Preference shares

Question 21

Give 2 examples of ordinary shareholders rights

Answer 21

Share of the profits
Voting rights
Entitled to residual value of the compny’s assets on liquidation

Question 22

What are redeemable shares?

Answer 22

Shares issued when a company wants to return capital to shareholders

Question 23

How are redeemable shares also known?

Answer 23

B shares

Question 24

What are ‘A’ ordinary shares?

Answer 24

Non-voting ordinary shares

Question 25

What are deferred shares?

Answer 25

Shares which only pay a dividend after a certain period

Question 26

What are the rights of preference shareholders with regards to dividends?

Answer 26

Entitled to fixed dividend every year if co has the profits

Question 27

What are the rights of preference shareholders with regards to a company's liquidation?

Answer 27

Have priority over ordinary shareholders on liquidation

Question 28

What are non-cumulative preference shares?

Answer 28

Preference shares which carry a fixed dividend, but lose the right if it isn't paid

Question 29

What are cumulative preference shares?

Answer 29

If a divi isn't paid in one year, company needs to pay it before the current year's divi is paid

Question 30

What is a participating preference share?

Answer 30

Fixed divi received as well as additional divi for proportion of ordinary dividend

Question 31

What are redeemable shares?

Answer 31

Co will pay nominal value of the shares at a set date

Question 32

What are convertible shares?

Answer 32

Can change preference shares to ordinary shares at a set date and on set terms

Question 33

What taxes are dividends subject to?

Answer 33

income tax and coprotation tax post allowance

Question 34

What is the annual dividend allowance?

Answer 34

£500

Question 35

What is a REIT?

Answer 35

An investment company that invests in and owns real estate assets

Question 36

How can an investor invest in a REIT ?

Answer 36

By investing in shares on the stock exchange

Question 37

What are the 2 components of a REIT?

Answer 37

1) Property investment & letting business 2) Property management business

Question 38

Which compnonent of the REIT is ring-denced for preferential tax treatment?

Answer 38

the property investment & letting business

Question 39

How much of the gross profits of the ring fenced business needs to be generated for a REIT to keep its preferential tax treatement?

Answer 39

75%