U1: T6 - DIRECT INVESTMENTS: CASH AND FIXED-INTEREST SECURITIES Flashcards
(50 cards)
What 3 main components are conventional Gilts made up of?
1) Par (face value)
2) Coupon
3) Redemption Date
In the context of GILTs what is the Par (face) value?
The issue value - the initial loan made to the government
In the context of GILTs what is the Coupon?
A taxable fixed interest rate payable on the par value at half-yearly intervals
In the context of GILTs what is the Redemption Date?
The date on which the government must ‘redeem’ or pay back the amount borrowed i.e. the par value
GILT coupons are:
1) Taxable
2) Not-taxable
1) Taxable
According the Financial Press a 6y GILT is:
1) Short-dated
2) Medium-dated
3) Long-dated?
- Medium-dated
According to the UK Debt Management Office, is a 6-year GILT:
1) Short-dated
2) Medium-dated
3) Long-dated?
1) Short-dated
According to the UK Debt Management Office, what is a short-dated GILT?
1) Less than 5 years to redemption
2) Less than 6 years to redemption
3) Less than 7 years to redemption
3) Less than 7 years to redemption
According to the UK Debt Management Office, what is a medium-dated GILT?
1) Between 5-15 years to redemption
2) Between 6-15 years to redemption
3) Between 7-15 years to redemption
3) Between 7-15 years to redemption
According to the UK financial press, what is a short-dated GILT?
1) Less than 5 years to redemption
2) Less than 6 years to redemption
3) Less than 7 years to redemption
1) Less than 5 years to redemption
According to the UK Financial Press, what is a medium-dated GILT?
1) Between 5-15 years to redemption
2) Between 6-15 years to redemption
3) Between 7-15 years to redemption
1) Between 5-15 years to redemption
According to the UK Financial Press, what is a long-dated GILT?
1) More than 14 years to redemption
2) More than 15 years to redemption
3) More than 16 years to redemption
2) More than 15 years to redemption
Why does the fact that corporate bonds are regarded as riskier than gilts mean that they generally pay higher rates of interest than similar gilts?
Corporate bonds pay higher rates of interest than similar gilts because of the relationship between risk and reward – the more risky the investment is considered to be, the greater the reward the investor expects
A bank deposit account is a good place to hold a ‘rainy day fund’. True or false?
True.
Deposit accounts allow instant access to funds and they are low risk because savings are protected by the Financial Services Compensation Scheme up to a limit of £85,000.
What, if any, is the minimum age at which a person can take out an NS&I Direct Saver?
a) There is no minimum age.
b) 16.
c) 18.
b) 16.
Interest on NS&I Income Bonds is tax‐free. True or false?
False.
Interest is paid gross but is taxable.
State two reasons why offshore bank accounts might be more risky than similar UK deposit accounts.
If the investment is held in a currency other than sterling, its value might be affected by adverse exchange rates if it has to be converted to sterling. Accounts held offshore might not be covered by investor protection schemes to the same extent as onshore UK investments.
In relation to gilts, what is the ‘coupon’?
The coupon is the interest rate payable on the par value of a gilt.
Jane has invested in short‐dated gilts. According to the UK Debt Management Office (DMO) definition, this means that:
a) the gilts will have a redemption date within the next seven years.
b) interest on the gilts will not be paid to her until the end of the term.
c) the gilts will have a redemption date within the next ten years.
d) she will be unable to access her capital until the end of the term.
a) The gilts will have a redemption date within the next seven years.
Rubina is considering buying a gilt, 3% Treasury 2025. The gilt is currently trading at a price of £107. What is the running yield?
The running yield is £3 (coupon) ÷ £107 (price paid) = 2.8%.
Running yield = coupon ÷ price paid
The main difference between corporate bonds and gilts is that corporate bonds:
a) usually pay a variable rate of interest.
b) are usually for larger amounts of money.
c) normally have no specified redemption date.
d) are considered to be higher‐risk investments.
d) Corporate bonds are considered to be higher‐risk investments.
The main difference between a debenture and other types of corporate bond is that a debenture:
a) carries the right to vote at the company’s annual general meeting.
b) is usually secured on the assets of the company.
c) can be converted to ordinary shares of the company.
d) pays a fixed rate of interest.
b) A debenture is usually secured on the assets of the company.
A Eurobond is the equivalent of a gilt, but issued by a government within the eurozone. True or false?
False.
A Eurobond is a bond issued or traded in a country that uses a currency other than the one in which the bond is denominated, and they can be issued by large companies, not just governments.
Jack opens an account so that his wages can be paid into it. He can use his account to pay bills such as utilities and rent via direct debit, and he can use his debit card to make purchases online and in shops, but he cannot have an overdraft. What kind of account does Jack have?
a) Packaged account.
b) An interbank account.
c) A basic bank account.
d) A debit account.
c) A basic bank account.
