1
Q
What specific factors can affect share prices?
A
- External economic and political factors
- Investor sentiment
- Profit expectations
- Dividend expectations
- Takeover activity
- Quality and track record of management
2
Q
Where does the dealing in shares take place?
A
LSE
3
Q
What is the primary market (shares)?
A
One in which securities are sold for the first time to investors to raise money for businesses
4
Q
What is the secondary market (shares)?
A
A market in which securities that have already been issued can be bought and sold between investors
5
Q
Where are shares admitted to when they are first issued on the London Stock Exchange?
A
- Official list/main market
- AIM
6
Q
What are the costs involved in buying and selling shares?
A
- Commission
- Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT)
- Panel On Takeovers Mergers (PTM) levy
7
Q
What is the spread?
A
The price difference between the offer price (price investors can buy shares) and the bid price (the price at which they can be sold)
8
Q
When is Stamp Duty Tax charged?
A
- Transaction amount > £1000
- Effected by a stock transfer
9
Q
When is Stamp Duty Reserve Tax charged?
A
- Paperless share transaction effected electronically through crest
- No transaction amount threshold
10
Q
What is the rate of SD/SDRT?
A
0.5% purchase price
11
Q
Who is SD/SDRT paid for by?
A
Purchaser
12
Q
What is SD/SDRT rounded to?
A
SD: Next multiple of £5
SDRT: Rounded to nearest penny
13
Q
What is the PTM levy?
A
Flat charge of £1 to all trades over £10,000
14
Q
What does the PTM do?
A
Overseas all takeovers and mergers of companies listed on the London Stock Exchange
15
Q
How do preference shares treat the below
- receipt of dividends
- priorities
- control of company
- return of company in liquidation
A
- Usually pay fixed rate of dividend half yearly, only paid if sufficient after-tax profits
- Priority over payment on ordinary shares, but after interest payments
- No voting rights unless dividends in arrears
- In liquidation: ahead of ordinary share capital, after loan capital
16
Q
What are the different kinds of preference shares?
A
- Cumulative preference
- Non-cumulative preference
- Participating preference
- Redeemable preference
- Convertible preference
17
Q
How do ordinary shares treat the below
- receipt of dividends
- priorities
- control of company
- return of company in liquidation
A
- Entitled to a share of profits after tax/preference shares
- Ordinary shareholders entitled to vote
- In liquidation: residual value of assets after debts and other shareholders
- Bear the greatest risks
18
Q
What are different kinds of ordinary shares?
A
- Non voting
- Deferred ordinary (do not qualify for a dividend until pre determined level)
- Alphabet shares (different types within company)
19
Q
What is the tax treatment of dividends?
A
- Dividend allowance: £2000 Above this: - Basic: 7.5% - Higher: 32.5% - Additional: 38.1%
20
Q
What are the main risks of holding shares?
A
- Equity capital
- Share dividend volatility
- Currency risk
- Liquidity risk
- Counterparty risk
- Fund managers and insurance companies
- Regulatory risk
21
Q
What is the difference between systematic and non systematic shares?
A
Systematic: entire market
Non systematic: individual companies/industries
22
Q
What do investment ratios allow?
A
- trends in the company’s performance over a number of years to be identified
- comparisons to be made with similar companies and/or with the industry’s average
23
Q
What does EPS allow?
A
Investor to see the trend in a company’s profitability
24
Q
How is EPS calculated?
A
(Profit attributable to ordinary shareholders) / (Number of ordinary shares in issue)
25
What does dividend yield allow?
An investor to compare the current return on a share with the return that could be obtained from bonds, deposits or an alternative share
26
How is dividend yield calculated?
((Dividend per share)/(Current share price)) x 100%
27
What is dividend cover?
Measures how many times the dividend could be paid out of the avail current earnings. Indicates the riskiness of the investment and the margin of safety the company has in paying the dividends.
28
What are the two ways dividend cover can be calculated?
1) ON AN INDIVIDUAL BASIS:
(profit attributable to ordinary shareholders) / (dividends paid to ordinary shareholders)
2) ON A TOTAL PROFIT BASIS:
(earnings per share) / (dividend per share)
29
What is the price earnings (P/E) ratio?
Measure of how highly investors value the earnings of a company - can be seen as a reflection of market's optimism/pessimism about future growth.
30
How is Price Earnings Ratio calculated?
(Current market price of share) / (Earnings per share)
31
What is Net Asset Value (NAV)?
Value of the tangible assets that are attributable to the ordinary shareholders. Attempts to measure the amount available to shareholders if company shut down and the residual distribution to shareholders.
32
How is NAV calculated?
(Net assets attributable to ordinary shareholders) / (Number of ordinary shares in issue)
33
How can indices be used?
- Compare the performance of a particular share with its sector or market as a whole
- Compare fund manager with market as a whole
34
What is the FTSE All Share?
- Market value of FTSE 100, FTSE 250 & FTSE SmallCap.
| - Represents 90% LSE
35
What is the FTSE 100?
Tracks value of 100 biggest companies listed on LSE
36
What is the FTSE 250?
101st-350th largest companies
| Approx 15% market capitalisation
37
What is the FTSE 350?
Combination of FTSE 100 + FTSE 250
| Approx 96% market cap
38
What is the FTSE SmallCap?
Companies in FTSE all share that are too small to qualify for top 350
39
What is FTSE Fledgling?
Eligible for FTSE UK series but are too small for FTSE All-Share.
No liquidity requirement.
Reviewed annually in June
40
What is FTSE Aim Index series?
Young and growing companies traded on AIM
41
What is the FTSE TMT?
Performance of companies in the technology, media and telecoms sector.
42
What is the FTSE techmark All-Share?
All companies inc within LSE's techMARK sector for innovative technology stocks
43
What is FTSE4Good?
Companies that meet globally recognised corporate social responsibility standards
44
What is the FTSE Actuaries UK Conventional Gilts All Stocks IndeX?
All British Gov securities quoted on the LSE
45
What is the FTSE Sterling Corporate Bond Index?
Sterling-denominated corporate bonds of investment grade quality
46
What is the US equity indices?
- Dow Jones Industrial Average
- S&P 500
- NASDAQ Composite
47
What are the Japanese equity indices?
- Nikkei 225
| - Tokyo Stock Exchange Index (Topix)
48
What is the German equity index?
Dax 30
49
What is the Hong Kong equity index?
Hang Seng Index
50
What is the French equity index?
CAC General Index
| CAC 40
51
What is the world equity index?
MSCI World Index
| FTSE All-world Index
52
What is the limitation of modern indices?
- Mostly weighted by market capitalisation. Few large companies can have substantial effect.
- Do not include costs of buying, selling, CGT or management expenses
- Assumes that the investor is fully committed and does not hold cash balances
53
What are the drawbacks of property investment?
- Lack of liquidity
- Costs (initial and ongoing)
- Void period where no tenant
54
What should be considered when choosing a property for letting?
- Location
- Tenants
- Age/Condition
- Diversification
55
What is the general rule for property yield?
Larger the property, lower the yield
56
What is Stamp Duty Land Tax?
Paid on purchases of land, property and certain leases in England and Northern Island
57
What is the rate of SDLT on the slice of a property up to £125,000?
0%
58
What is the rate of SDLT on the slice of a property between £125,001 - £250,000?
2%
59
What is the rate of SDLT on the slice of a property between £250,001 - £925,000?
5%
60
What is the rate of SDLT on the slice of a property between £925,001 - £1,500,000?
10%
61
What is the rate of SDLT on the slice of a property over £1,500,000?
12%
62
How is the SDLT paid on the purchase price?
Only paid at the rate of tax on the part of the purchase price within each tax band
63
What is the SDLT for first-time buyers?
- Pay no SDLT on first £300,000
| - No relief is avail where the total price paid is more than £500,000
64
What is the additional SDLT charged on top of normal SDLT on purchases of second residential properties over £40,000?
3%
65
Where does the additional property SDLT (3%) not apply?
If property being purchased is replacing existing main residence
66
What are the commercial property SDLT rates on a total of up to £150,000?
0%
67
What are the commercial property SDLT rates on a the portion between £150,001-£250,000?
2%
68
What are the commercial property SDLT rates on the portion of over £250,000?
5%
69
What is SDLT charged on?
Net Present Value (NPV) calculated by:
- Multiplying the annual rent by the term of the lease
- Applying a discount to allow for inflation
- Finally deducting threshold figure
70
What are the NPV thresholds for SDLT on rented property?
Residential : £125,000
Commercial: £150,000
(No NPV charged)
71
What is SDLT charged at for rented properties above threshold (£125,000 and £150,000)?
Residential: 1% on the amount of NPV in excess of threshold
Commercial: 1% up to £5m, 2% thereafter
72
What is the Scottish property tax?
Land and Buildings Transaction Tax (LBTT)
73
What is the Welsh property tax?
Land Transaction Tax (LTT)
74
What is rent-a-room relief?
Special exemption from tax, when renting room in own house.
75
What are the rules of rent-a-room relief?
- If cannot be self-contained unit or unfurnished
- Tenant must occupy as main resident
- No tax payable if if gross rent does not exceed £7,500
- Only one exempt per property
- Rent inc goods/services
76
How does rent-a-room relief apply to a tenant and a sub-let?
The amount of £7,500 would be split over the owner and the tenant (£3, 750 each)
77
If income from letting a room exceeds rent-a-room relief (£7500) what are the options?
1) Choose to pay tax on the excess over £7,500 with no deduction for expenses
2) Be taxed on the gross rent, less expenses, with no rent-a-room relief
78
What is the annual property income allowance?
£1000
79
What is an option once property income has exceeded annual allowance of £1000?
Deducting the allowance from gross profit to calculate taxable profit, rather than deducting actual allowable expenses
80
What are the three main sectors of commercial property?
Retail
Office buildings
Industrial properties (factories/warehouses)
81
Which is the lowest yielding sector of commercial property?
Lowest yielding = retail
Mid yielding = office
Highest yielding = industrial
82
What are the drawbacks of investing in commercial property?
- Sale and purchase is slow/complex
- Offers opportunity for income growth but in steps (rent reviews)
- Usually has to be sold as whole so cannot divide up
- Difficult market to analyse
- Can be time lag in increasing the supply of property to meet extra demand, resulting in over supply
83
What are some common characteristics of investments in physical assets (art and collectibles)?
- Do not usually generate income
- Often cost money to keep or insure
- Value is dependant on limited supply and fluctuating demand
- Demand is driven by taste of collectors
- Taste can be conditioned by experts
- Authenticity can be very important
84
What are hard commodities?
Product of mining and other extractive processes
| ie gold, silver, crude oil, gas
85
What are soft commodities?
Typically grown rather than mined
| coffee, cocoa, sugar, corn, wheat and livestock
86
How do most people invest in commodities?
Investing in:
- Companies that produce commodities
- Funds that invest in commodities
- Exchange traded commodities (ETCs)
87
What are the risks with commodity investment?
- Markets dominated by trading interest therefore prices more volatile
- Political risk
88
What are some features of cryptocurrencies?
- Transactions are anonymous
- Not backed by govs/central banks
- Not regulated by FCA
R02
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Decks in class (8)
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