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CeMAP Unit 1 > Topic 7 Other Direct Investments > Flashcards

Topic 7 Other Direct Investments Flashcards

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1
Q

What are Equities/Ordinary shares?

A

Most important type of shares issued by a UK company

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2
Q

Most Equities are bought by who?

A
  • Institutions
  • Life funds
  • Pension funds
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3
Q
  1. Ownership
  2. Debt

Are what?

A

What financial assets are divided into

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4
Q

What is the name of the document that would enable investors to look at the right to shares in a company?

A

Articles of Association

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5
Q

Where can Articles of Association be viewed?

A
  1. The company’s registered office
  2. Companies House
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6
Q

What are the 4 factors that affect share prices?

A
  1. Company profitability
  2. Supply & demand for shares/Investments
  3. Strength of the market sector
  4. Strength of the UK & global economy
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7
Q

In the long term what has provided more returns investments in Deposits or Equities

A

Equities

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8
Q

Where are shares bought and sold?

A

London Stock Exchange (LSE)

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9
Q

The 2 main markets of the LSE are?

A
  1. Main Market
  2. Alternative Investment Market
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10
Q

The FCA controls what in relation to companies on the main market?

A

UK Listing Authority (UKLA)

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11
Q

For a company to be listed to trade on the main market how many years must it have been trading for?

A

3 years

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12
Q

For a company to be listed to trade on the main market how much of it’s issued share capital must be in public hands?

A

25%

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13
Q

What is the Primary Market?

A

Where companies and Financial Organisations raise funds by selling new securities to investors

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14
Q

What is the process called when a company trades on the stock market?

A

“Going public” or “Floating”

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15
Q

What is a advantage of a company going public?

A

Shares can be traded with greater ease

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16
Q

What is the Secondary Market?

A

Where investors buy and sell excising securities

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17
Q

Which market trades more securities in a day?

Primary or Secondary?

A

Secondary Market

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18
Q

What is the Alternative Investment Market (AIM)?

A

Market aimed a new small businesses to raise capital and public awareness and enhance profiles

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19
Q

Are rules for joining the Alternative Investment Market as strict as the Main Market?

A

No the rules are less strict

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20
Q

What are the Share Indices?

A
  1. FTSE 100 Index
  2. FTSE 250 Index
  3. FTSE 350 Index
  4. FTSE All-Share Index
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21
Q

Which share index is defined as?

Largest 350 companies by capitalisation. Incud FTSE 100 & FTSE 250

A

FTSE 350

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22
Q

Which share index is defined as?

  • 600 shares
  • Split into sectors
  • Measures price movements and return on shares
A

FTSE All-Share Index

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23
Q

What is the definition of Market Capitalisation?

A

A company’s market value which is the number of shares in issue mutliped their share price

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24
Q
  1. Individual & Institutional investors, Pension funds
  2. Bank & Other Traders
  3. Governments & Public Corps
  4. Investment Banks
A

Participants in the markets

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25
What is " Over the counter trading" (OTC) or "Dark Pools"
Deals between institutions for large block of securities that have very little public knowledge
26
How is " Over the counter trading" (OTC) or "Dark Pools" being stopped
New reporting requirements are being implemented
27
Why are Dividends paid half yearly?
Admin involved in giving shareholders their dividends is time consuming
28
1. Growth in share price (share capital) 2. Dividend as income Are what?
What shareholders hope to get from their shares
29
Earnings per share is what?
A company's net profits divided by the number of shares
30
What is Dividend Cover?
The amount of profits paid out as distribution
31
What is acceptable to investors as a dividend distribution?
2.0 or more
32
If an investor received 1.0 or less what would it mean?
That the company was paying out of it's retained profits
33
What is Price/Earnings Ratio?
Earnings per share dividend by share price
34
Are Dividends paid with tax deducted?
No they are paid gross of tax
35
What are Rights Issues?
When a company issues new shares it must first offer the new shares to existing shareholders
36
How are Rights Issues offered?
Normally at a discount price
37
What happens if a shareholder does not want to take the rights offer?
They can sell the rights to another shareholder and keep the sale proceeds. To compensate for the share disillusion they will suffer.
38
What are Scrip Issues?
A free of charge issue of additional shares to existing shareholders
39
How are Scrip Issue shares created?
Transfering company reserves into company share account. This reduces share prices
40
How are Preference Shares different from Ordinary Shares?
Dividends that are paid at fixed rate and are payable ahead of ordinary shareholders
41
What does it mean if a preference share is cumulative?
That if a dividend is not paid entitlement is accumulated until they can be paid. This total is accumulated from the years that dividend couldn't be paid
42
What are Convertible Preference Shares?
Shares that can be converted to ordinary shares of a company
43
What is a warrant?
Enables the holder to buy shares at a set price and on an agreed date, regardless of what the share is trading at
44
What are the benefits of Property Investment?
- Can be used as form of security - UK property market is developed and professional
45
Downsides of property investment?
- Location is key - Economic conditions may affect lettings & property values - Property is less liquid (money is tied up)
46
For people with less funds and less risk what investment in property may be more appropriate?
Property Bonds
47
What makes BTL's attractive to investors?
1. Regular Income stream 2. Easy access to BTL mortgages 3. Well Developed Markets 4. Easy access to lettings/ property management agents
48
These are all what? - Property Investment is illiquid - Can be unlet for a while - property can be damaged by bad tennants which may lead to legal charges - Property maintenance costs - Accessing the market can be difficult
Disadvantages of BTL mortgages
49
What have the government done to reduce BTL attractiveness?
**Tax Relief** Now is only 20% of interest at basic tax rate **Wear & Tear Allowance** Replaced by Furniture Replacement allowance which allows on the cost of replacing a furniture **SDLT** 2nd properties subject to surcharge purchase
50
- Individual Retail Units - Shopping Centre/arcades - Offices - Industrial Units - Hotel/Leisure Facilities - Mixed use property
Examples of commercial properties
51
All the below are what? - Regular rent reviews - Longer leases - More stable longer-term tennants - Lower initial refreshment costs
Advantages of Commercial Properties
52
All the below are what? - Higher value makes spreading risk more difficult - Does not show dramatic growth like residential property - Commercial rates may be larger
Disadvantages of Commercial Properties
53
What should lenders look out for with commercial property?
- Quality of the land - Reputation of the building professionals - Suitability of likely tennants
54
What is the IHT relief for an owner occupied agricultural property?
100%
55
What is the IHT relief for a let out agricultural property?
50%
56
How is dividend cover calculated?
Net profits / dividend paid
57
What are Money Market Instruments?
Short term debt that pays no interest during the term of the transaction
58
How is the interest on Money Market Instruments calculated?
Amount Invested/ Amount Repaid
59
What are Treasury Bills?
Short term shares issues by the treasury
60
Which office of the Treasury issues Treasury Bills
Debt Management Office (DMO)
61
How long is a Treasury Bill issued?
91 days
62
What does Zero-Coupon Security mean?
Interest is not paid on a loan
63
How are Treasury Bills Issued?
At a discount rate to the par value which is redeemed on redemption
64
Who is normally most attracted to Treasury Bills?
Large organisations
65
What are Certificates of Deposit?
Issued by banks/building societies to investors to confirm a deposit has been made to them
66
When is interest paid on a Certificate of Deposit?
At the end of the term
67
What is the typical length of a Certificate of Deposit?
3-6 months
68
Can Certificate of Deposits be rolled over?
Yes for another 3-6 months under specified terms
69
What is the typical amount for a Certificate of Deposit
£50,000 or more
70
What happens if an investor requires their funds back on a Certificate of Deposit?
They can expect withdrawal penalties
71
Can Certificate of Deposits be sold?
Yes to a 3rd party
72
What is Commercial Paper?
Unsecured promissory note to repay funds received in exchange for Commercial Paper
73
Commercial Paper involves larger amounts of borrowing? True or False
True
74
Can a company with a bad credit rating issue Commercial Paper?
Yes if they have a letter from an bank offering to cover the Commercial Paper if they default
75
What is the normal length of a Commercial Paper?
5 - 45 days
76
Why would Commercial Paper be rolled over?
- Flexibility - Not a long period of fixed interest
77
Why would a company offer Commercial Paper?
It is a cheaper form of borrowing
78
What is a Bearer Security?
Security owned by whoever possess the document
79
Direct Investments are risky for investors because?
- Companies can fail without return of capital - Difficult to spread risk
80
What is the FTSE 250 defined as?
Next 250 companies after the FSTE 100
81
What is tax credit on BTL mortgages?
20% on the interest paid at basic rate tax

CeMAP Unit 1 (18 decks)

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