Week 5

Question 1

What are equities?

Answer 1

Ownership of a company, when you buy shares.

Question 2

What are the different equities?

Means shares

Answer 2

Ordinary shares

Preference shares

Deferred shares

Convertible shares

Question 3

How do ordinary and preference shares differ?

Answer 3

Ordinary have voting rights, no guarantee dividend whereas preference have no voting right but are more important than ordinary on payout and guarantee dividend.

Question 4

What are deferred shares and convertible shares?

Answer 4

Deffered is a type of preferred share in that you get priority over ordinary shareholders, if dividends cant pay, it’ll accumulate.

Convertible shares, you can convert from Preffered (another type of preferred) than can convert into ordinary shares.

Question 5

Why might someone want to convert convertible shares which are preferred into ordinary shares?

Answer 5

Because ordinary shares do not have a dividend cap wheres preferred shares have a fixed dividend cap.

Question 6

What is a partly paid share?

Answer 6

Where you pay $1 of $3 and the company can request the other $2 later, but you still own share and you must pay.

Question 7

You can get partly paid deffered shares, is this true or false?

Answer 7

This is true, partly paid can apply to any type of share such as ordinary, preferred, deffered or convertible.

Question 8

What is the difference between listed and quoted shares?

Answer 8

Listed, the shares are on the stock market ready to buy

Quoted, the shares are on stock market and are being bought and sold by people.

Question 9

What are the main two types of ways people buy equity?

Answer 9

Direct- picking your own shares

pooled- you invest you money, joined with others into a trust where a fund manager will pick the shares.

Question 10

What are the three types of brokers you could get in terms of how they behave?

Answer 10

Execute only- No advice, they only execute what you ask them to

Advisory (non-discretionary)- they give you advice but you still make the decisions

discretionary broker- they will manage everything for you

Question 11

In basic, whats dividend tax threshold?

Answer 11

500 quid and they’re taxed separately from your income

Question 12

In basic what is stamp duty?

Answer 12

Stamp duty is what you pay for purchasing a stock or shares and its around 0.5% of purchase price.

Question 13

What are 3 methods to wrap tax?

Answer 13

Equity ISA

Enterprise Investment scheme

Employee share scheme

Question 14

What is an equity ISA and how is it tax beneficial?

Answer 14

It’s buying shares inside of an ISA. It offers no income tax on dividends and no CGT on sale.

Question 15

Whats an enterprise investment scheme and how is it tax beneficial?

Answer 15

Its investing in small companies, you get a 30% tax relief and 3 years of no CGT if conditions are met.

Question 16

Whats the employee share scheme?

Answer 16

Like Nvidia done, employees can buy shares of company usually at a discounted price and is beneficial as if growth and certain conditions met you pay no income tax.

Question 17

What are some factors that impact a companies share price?

Answer 17

Company management, inflation, interest rate, past performance, politics, dividend payouts, supply and demand, possible insider trading, market manipulation by majority shareholders.

Question 18

What are two ways a company can evaluate shares?

Answer 18

Fundamental analysis- looking at its finances

technical analysis- looking at charts and graphs.

Question 19

What are some ways you could measure a companies performance?

Answer 19

Financial activity, investing activity, annual shareholder letter, SOFP, balance sheet, cash flow statements.

Question 20

What is a derivative?

Answer 20

A financial product which value is based on another asset like bonds and stocks. (you dont own the thing itself, just betting it goes up or down)

Question 21

What are the 4 derivatives and explain them?

Answer 21

Futures contract- You set a price to buy or sell at future date and you are obligated

Options contract- You pay fee but you are not obligated to buy or sell, you can. let it expire

warrant- Issued by companies, its an option where you can buy shares of company at set price in future, not obligated though

Covered warrant- similar to warrants except issued by banks/ financial institutions and are backed by an index

Question 22

What an ISA in basic?

Answer 22

A tax free account where you can save or invest money.

Question 23

Explain transfer of an ISA?

Answer 23

You can transfer for ex cash isa to stock isa. You must use ISA transfer, if you withdraw and put back in you could lose tax free status and risk termination.

Question 24

What are the different styles of ISA in terms of what you pick?

Answer 24

Self select ISA where you pick

Managed where they pick

Question 25

What are the 5 different select type ISA (not type of ISA) with short explanation?

Answer 25

Cash ISA- Basic savings, investing tax free Self select ISA- You pick all investments Managed ISA- They pick you're investments Corporate ISA- Usually corporate bonds, fixed interest rate payments Unit linked ISA- Linked to units (pooled funds)

Question 26

What might 3 types of fees you get with an ISA be?

Answer 26

You could get Transaction fees platform fees management fees

Question 27

Tell me about a junior ISA?

Answer 27

You must live in uk, be under 18. At 16 you over take from parent/ guardian who is in control until then, at 18 you can withdraw from it as at age 18, junior ISA turns into a regular adult ISA.

Question 28

EIS, what do you get with it, and what are conditions to get it?

Answer 28

With Enterprise investment scheme you can get 30% tax relief on amount you invest, you can defer CGT by investing in an EIS company Conditions are, you must have held stock for more than 3 years, the company is small (gross asset under 15 million) and that investor is a uk tax payer.

Question 29

Employee incentive scheme, why is it used?

Question 30

Basic tax planning describe it in basic?

Answer 30

You try reduce tax legally. You use legal way to exempt tax, you also use investments which are tax efficient

Question 31

Whats the basics for confidentiality and disclosure, describe?

Answer 31

Financial advisors must keep all information private, unless needed by law.

Question 32

Whats the tax free allowances?

Answer 32

CGT- $3K Personal income tax- $12,750 Dividends- $500