R02 Flashcards

Question

Net asset value

Answer 1

Value of a company Net asset attributable to ordinary shareholders / number of ordinary shares in issue

Answer 2

Business ability to meet debt Current assets - stock / liabilities

Answer 3

Measure of borrowing Long term debt / shareholders funds

Answer 4

Allows investors to see movement in markets as a whole. Problem is weighted to market capitalisation, large companies have heavy impact on effect of indicies

Answer 5

Very illiquid, needs to be managed, void periods, increased tax Stamp duty lank tax due 14 days after transaction has taken place Renting out part of your home 7500 household relief Property income allowance - no tax is income less than 1k

Answer 6

Rent per month x 12 / cost on property x 100 True rental yields Rent per month - monthly fees x 12 / cost of property + SDLT + solicitor fees x 100

Answer 7

Works of art, collectables Commodities Hard - mined stuff, gold, oil, gas Soft - grown stuff, coffee, wheat

Answer 8

Print money to stimulate economy

Answer 9

Trends have a big impact, investors stop looking at fundamentals and follow trends which inflates price creating a bubble...

Answer 10

American sneeze what happens in America then follow worldwide The human factor - aging population

Answer 11

Expansion: strong demand for goods, growth in sales and profitability, demand starts to overtake supply, prices start to rise (inflation) economy starts to overheat and interest rates start to rise Boom: highest point in cycle, economy growing at its fastest, interest rates increase again, demand will start to fall Slowdown/contraction: inflation could still be high as demand starts to fall, business sales start to decrease and unemployment starts to rise, interest rates start to fall Recession: seceerve economic downturn, profits are weak, people aren't spending as much, inflation falls, interest rates fall

Answer 12

Common way to illustrate how an economy is doing, one quarter economy shrinks is known as a contraction, two successive is a recession

Answer 13

What comes in and out of a countries economy - is there more coming in than out, if there is a recession the PSNCR will grow and vice versa How much cash is needed to function

Answer 14

Fixed interest - inverse relationship with interest rates and inflation Equities - inflation high, equities to well as more people buying and vice versa

Answer 15

Fiscal policies - government spending more of cutting tax in times of economic downturn. Gov increase tax and decrease spending in times of boom Gov Spending money will have more impact then cutting tax rates... Gov spending goes in economy whereas cutting tax people could save it... Monetary policies - controlling interest rates Easing monetary policy - short term reduction in interest rates followed by long term Tightening - opposite of above

Answer 16

the rate at which banks lend to each other and the rate in which they do

Answer 17

2 common measures M0 - notes and coins plus banks operational money held with BoE - this shows stonf consumer spending and retail sales M4 - inc all deposits created from lending banks plus money held by savers and banks and coins - suggests more lending is taking place

Answer 18

Buying and selling bonds Selling bonds reduces amount of money as people invest Buying increases amount as it puts more money in ppls hands

Answer 19

This is the price of goods and services on a month to month basis There are a number of ways this can be measured Retail price index - used for index linked Gilts Consumer price index - allows comparison across European counties

Answer 20

Disinflstion - where inflation rises at a slower rate then they have been Deflation - where prices actually start to fall Stagflation - inflation is high but growth is flat

Answer 21

Based on supply and demand - where a country is producing goods, people need their currency to buy it, increase demand increase price... It strengthens the currency against other currencies Equally if interest rates in a country are high, people will want to invest in cash deposits in that country, increasing demand for currency

Answer 22

Allows us to measure how competitive one country is compared to another accounting for inflation

Answer 23

Money in vs money out of a economy, deficit shows more money going out, surplus shows more money coming in

Answer 24

Measures financial flows and investment in and out if an economy

Answer 25

Modern portfolio theory - diversification Standard deviation - the extent the return varies from the expected return. A higher SD would indicate more volatility

Answer 26

By holding different investments within a portfolio will reduce the risk, it is important to consider the correlation between the assets to see how diversified the portfolio is Correlation can be measured on a scale from +1 to -1 Positive correlation if one stock moves 10% the over moves 10% in the same direction Negative correlation if one moves up 10% the other moves down 10%

Answer 27

Options - gives option to sell but do not have to if don't want to (it can expire) Futures - have to sell at agreed price

Answer 28

Represents the best return for the risk taken, an investor would not vary from this as it would mean taking extra unneeded risk Think of the graph in your head now

Answer 29

Not a precise tool, relies on past performance, doesn't include costs or charges, assumes portfolio made up of index funds

Answer 30

Systematic (market risk) Non systematic risk (specific risk)

Answer 31

Considers the risk free return plus extra return for additional risk taken, the measure of systematic risk is known as beta The non systematic risk is ignored as it is diversified away

Answer 32

The market always has a beta of 1, a beta of 1 means the security will move exactly like the market does A beta below 1 but above 0 means the security will move at a slower rate e.g. if beta was 0.5 if the market moves by 10% the security will move by 5% A beta of above 1 would move the security would move up and down at a higher rate then the market e.g. a beta of 1.5 would mean if the market moves 10% the security move 15%

Answer 33

Risk free return + Beta x (market return - risk free return) The model assumes: same holding periods rational, rf rate is available, open market

Answer 34

How markets act based on information Weak form - all info inc in price, no outperformance possible Semi-strong - any info in public domain is inc in price Strong- price inc all info not just financial info but also private info

Answer 35

PV = amount x (1+r)N FV = amount / (1+r)N Working out rate of return FV/PV then number of years square root ans Changing interest rates part way through FV = PV(1+(r/n))N1 X (1+r)N3 Interest paid at different intervals i.e more than annually EAR (1+(R/N))N -1 Regular premiums FV= P {(1+R)N - 1 /R}

Answer 36

Credit risk - impact bonds Default risk Downgrade risk- bonds rank more riskier, prices decrease Currency risk Bail in risk Event risk Political risk Liquidity risk

Answer 37

Unit trusts and OEICS open ended investments

Answer 38

Collective investments categorized into the following categories: UK UCITs (comply and can be sold to retail investors) UK non UCITs (do not comply but can be sold to uo retail investors) Qualified investments schemes (not to be marketed to anyone other than pro or sophisticated investors)

Answer 39

Portfolio must not hold more than 10% of a stock and no more than 4 x 10%, rest have to be less than 5% No more than 20% in one group of companies Funds holding more than 35% in gov fixed interest must have least 6 different issues if that stock, no more than 30% in fund 10% can be held in unlisted UCITs and 20% for non-UCITSs

Answer 40

UCITs are not permitted to borrow to gear up, they can borrow up to 10% in the short term to cover payments such as dividends so they do not have to sell assets

Answer 41

Unauthorized un regulated schemes known as UCIS - not authorized by fca and can only be taken out by high net worth and sophisticated investors

Answer 42

Are actually a trust. Trustee - typically bank/building society; responsibility inc: monitor, manage, set up, hold up to date, ensure assets invested as per objectives The trust deed - legally binding, strategy, aims/objectives, limitations Unit trust manager - manage assets in accordance with regulation and trust deed, invest in the funds, sufficient resource to operate, keep register of units issued, inform of any breaches Unit trusts are open ended

Answer 43

Pricing on unit trusts - offer price is the price the manager offers units to investors at. The bid price is the investors selling price. The difference is the charge to investor. Valuing funds - Forward pricing - setting price at the next valuation point, if the fund has moved more than 2% since the last valuation the manager must move to forward pricing - pay price at next valuation point Historic pricing- set price at last valuation point

Answer 44

Very similar to unit trusts but they are structured as a company, depositary owns assets, auth company director performs same tile as manager

Answer 45

Many different types of management available: Multimanager products- hold broad range of assets through: Funds of funds: a fund that invests in other funds Manager of managers funds: different fund managers liik after different part of the investment they specialize in

Answer 46

Gross roll up Tax treatment, reporting and non reporting

Answer 47

Stops tax havens, government communicate

Answer 48

Closed ended investments - trading at net asset value, can trade at discount or premium, if all those who sell cal this is known as diluted nav. If not it is known as undiluted nav

Answer 49

Two primary capital structures: Standard or conventional - one class of shares under which the investor gets any income or gains produced Split capital - inv trusts with limited lifespans and different shares classes, distributed differently

Answer 50

Right to buy shares at a set price at a set point in time

Answer 51

As Investment trusts are closed ended, supply and demand can be limited so 10% shares can be hold as buy back to control S&D

Answer 52

Borrowing to invest, investors can benefit from the growth on the borrowing

Answer 53

With-profits : smooths out the investment Unit-linked : policy holder given units in a fund Regular premiums contracts- qualifying and non qualifying Lumo sum contracts non-qual example: guaranteed income, growth bonds, unit linked bonds, dist bonds Tax on onshore life contracts- 20% paid in fund rest tax on indiv as appropriate... Non qualifying and qual can 5% unral investment withfre tax differed

Answer 54

Problem with unit linked - if invest at bad time... Pound cost averaging averages out timing to market

Answer 55

Some policies especially with profit may not be needed, and do not want to surrender to lose bonus, can sell one second hand market, the buyer will pay cgt on payment price and premiums paid take sale price

Answer 56

Gross role up, there is time appointment relief Equation - number of days UK resident - number says policy ran, x answer by chargeable gain Offshore bonds, personal portfolio bind charges 15% tax

Answer 57

If between 50 and 60k reduced

Answer 58

25% tax liability if settlor pays into trust

Answer 59

Index tracking funds listed on the stock exchange, do not own stock but track indicies through derivatives

Answer 60

Listed priority companies - investors but shares in a portfolio that comprises I'd property Property authorized investment fund PAIF - example of OIC fund Tax on the investor - income paid net 20% To qualify: 60% income must come from property element No investor hold more than 10% Real estate investment trust REIT Closed ended companies listed on recognized stick exchange To qualify: 75% profit come from profit, 90% paid to shareholders, borrowing covered 125% rental Remember non property = div Property = interest

Answer 61

Eis Seis Vct

Answer 62

ISA LIFETIME ISA HELP TO BUY CTF JUNIOR ISA

Answer 63

Can be sold via simplify advice process

Answer 64

Where agreed directly between 2 parties known as over the counter How can derivatives be used? To hedge future prices To hedge a portfolio Achieve different asset allocation Speculation No cgt for derivatives in GILTs or Corp bonds

Answer 65

Legally binding for one party to sell and one to buy, buyer holds 'long' position, seller has 'short' position - most do not actually involve a transfer just the margin Where exchange does take place it is called - exchange delivery settlement price 'EDSP

Answer 66

Options: do not have obligation but have the option to sell, if do not exercise option it expires, can sell prior to expirer date, an option price is known as the 'strike price' a call option is the right to buy, a put option is the exercise the right to sell

Answer 67

Higher charges Cayman Islands

Answer 68

Rely on skill if the manager to achieve positive return in all market conditions

Answer 69

Offer 100% capital protection

Answer 70

Consider: need = want - got 6 step process. 1- establishing and defining the client and personal financial planner relationship 2- gather client data and determining goals and expectations 3- analysing and evaluation the clients financial status 4- developing and presenting the financial plan 5- implementing the financial plan and recommendations 6- monitor the plan and relationship

Answer 71

Scientific/theoretical approach- highest return on line with risk profile, MPT, efficient Frontier Pragmatic approach - ignores all mathematical theory that underpins MPY and uses what has happened in the past in combination with the thoughts of the adviser on what will happen in the future Stochastic profiling approach - uses complex.mathematics moddelled by actuaries - example returns between 5-15% or -5 - 20%

Answer 72

Top down - asset allocation, geography, industry, stock Bottom up - picking stocks to build up the portfolio

Answer 73

Employ different styles of stock selection Value, growth at a reasonable price (GARP), contrarianism - what has the market missed, momentum

Answer 74

Think about the: objective of the fund, costs and charges, the group fund, risk, the fund manager , performance

Answer 75

Economic - waste, pollution Social - diversity of workforce Governance - bond, corruption There is positive and negative screening, positive good

Answer 76

Passive - use the fund to track the market Active - actively seek to outperform the benchmark

Answer 77

Pension, isa, collective funds, onshore vs offshore, vct, eis, seis

Answer 78

Attitude for risk- how someone feels about risk Capacity for loss- how much someone can actually afford to lose

Answer 79

Value at the start and end and any money paid out between start and end as a % of value at start R = D + (V1-V0)/V0

Answer 80

Takes into consideration money paid in or taken out D + (V1-V0) - C / V0 + (C x n/12)

Answer 81

Breaks down returns in a set period (V1/V0 x V2/(V1+c)) -1

Answer 82

Measures excess return over risk free rate of each unit of risk taken Return on investment - risk free return / Stand deviation of the return of the investment

Answer 83

Looks at consistency of performance against the benchmark: shows.effectiveness of the fund manager over passive funds Rp- Rb / tracking error

Answer 84

The actually performance, the performance difference from expected Beta Actual portfolio performance - (Rf + B(Rm-Rf))

Answer 85

Limitations to benchmarking when comparing fund manager performance to benchmark of indicies, as they only reflect movement in capital value, no accounting for cash balancing, weighting cap can cause distortion

Answer 86

Performance, risk, size, experience, ESG, charges, staff turnover

Answer 87

Changes in tax, regulation, personal situation, any changes in strategy, details of holdings

Answer 88

Information ratio, how well a investor performs, higher it the better against benchmark

Answer 89

The underlying asset

Answer 90

You can now withdraw and reinvest

Answer 91

The trustee

Answer 92

Sharing of information regarding income payments to EU residents

Answer 93

Sell within a specified period at a predetermined price

Answer 94

The right but not the obligation, to buy or sell copper in the future

Answer 95

Core-satellite management

Answer 96

Time weighted rate of return allows comparisons to be made of the performance of one fund manager with another Money weighted rate of return measures the overall return in capital invested over a specific period

Answer 97

The investor policy statement

R02 Flashcards

(132 cards)