An investor sold a stock short and is worried about rising prices. To protect himself from

higher rate.

Andrew is considering investing in a new business, and to provide funds for this investment he has recently disposed

of the following assets:

(1) A short leasehold interest in a residential property. Andrew originally paid ￡50,000 for a 47 year lease of the

property in May 1995, and assigned the lease in May 2006 for ￡90,000.

(2) His holding of ￡10,000 7% Government Stock, on which interest is payable half-yearly on 20 April and

20 October. Andrew originally purchased this holding on 1 June 1999 for ￡9,980 and he sold it for ￡11,250

on 14 March 2005.

Andrew intends to subscribe for ordinary shares in a new company, Scalar Limited, which will be a UK based

manufacturing company. Three investors (including Andrew) have been identified, but a fourth investor may also be

invited to subscribe for shares. The investors are all unconnected, and would subscribe for shares in equal measure.

The intention is to raise ￡450,000 in this manner. The company will also raise a further ￡50,000 from the investors

in the form. of loans. Andrew has been told that he can take advantage of some tax reliefs on his investment in Scalar

Limited, but does not know anything about the details of these reliefs

Andrew’s employer, Bestadvice & Co, is proposing to change the staff pension scheme from a defined benefit scheme

to which the firm and the employees each contribute 6% of their annual salary, to a defined contribution scheme, to

which the employees will continue to contribute 6%, but the firm will contribute 8% of their annual salary. The

majority of Andrew’s colleagues are opposed to this move, but, given the increase in the firm’s contribution rate

Andrew himself is less sure that the proposal is without merit.

Required:

(a) (i) Calculate the chargeable gain arising on the assignment of the residential property lease in May 2006.

(2 marks)

A.the investor's prior investing experience

B.the investor's degree of financial security

C.the investor's tendency to make risky or conservative choices

D.the level of return the investor prefers

E.the investor's feeling about loss

A.investor's return requirement.

B.investor's aversion to risk.

C.certainty-equivalent rate of the portfolio.

D.minimum required utility of the portfolio.

A. A putable bond and a floating-rate bond.

B. A mortgage-backed security and a convertible bond.

C. A zero-coupon bond and a Treasury strip.

Social security and other employment-related pension payments are considered:

A) financial capital because they are derived from an accumulation of the investor's past labor.

B) human capital because they are derived directly from the investor's labor.

C) neither human capital nor financial capital because they are received after retirement.

A.5

B.6

C.7

D.8

A.downgrade risk.

B.default risk.

C.credit spread risk.

· The firm maintains a constant dividend payout ratio.

· Goodwill and patents account for a high proportion of the firm’s assets.

· The firm’s revenues and earnings are highly correlated with the business cycl

A.Furthermore, the investor focuses on the firm’s capacity to pay dividends rather than expected dividends. Considering the characteristics, the investor will most likely use which of the following valuation models？

B.Gordon dividend growth model

C.Asset-based valuation model

D.Free cash flow to equity model