Franchise and Bond Basics

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Questions and Answers

What factor contributes to the ultimate security of a bond?

The underlying company's stability (correct)

The company's stock performance

Interest rates in the market

Global economic conditions

What type of insurance is provided for the bonds mentioned?

Unemployment insurance

Full coverage insurance from Zurich (correct)

Federal insurance

Life insurance

What is a key characteristic of franchise bonds mentioned in the content?

They are backed by small businesses.

They are always unsecured.

They feature large capital reserves and good trading prospects. (correct)

They require full payment upfront.

How much capital access is guaranteed at a minimum for the bonds discussed?

Access of at least 12 months (A) Signup and view all the answers

What is the maximum investment amount for the most popular bond mentioned?

£950,000 (C) Signup and view all the answers

What type of tax advantage does the capital gains tax bond offer?

Capital gains tax deferral (C) Signup and view all the answers

Which franchises does the company work with?

Only franchises approved by the GFA (A) Signup and view all the answers

What is NOT mentioned as a method of securing a bond?

Government backing (D) Signup and view all the answers

What component does a franchise bond typically offer to an investor?

Fixed return and capital back on maturity (C) Signup and view all the answers

What is meant by the yield of a bond?

The rate of income or interest paid to the investor (B) Signup and view all the answers

Which statement best describes a typical feature of a franchise?

Franchises operate under a recognized brand name. (D) Signup and view all the answers

What advantage do franchise bonds often provide to investors?

Security and backing of a strong revenue company (D) Signup and view all the answers

How does a franchise typically generate income according to the content?

Through successful brand recognition and sales (A) Signup and view all the answers

Before equity, what financial instrument was primarily sold to gather capital?

Bonds (D) Signup and view all the answers

What is a typical characteristic of bonds that have fixed maturity values?

They may allow capital growth despite fixed maturity. (D) Signup and view all the answers

What percentage of McDonald's locations are franchises?

80% (B) Signup and view all the answers

Study Notes

Franchise Information

A franchise is a license granting access to a franchisor's business knowledge, processes, and trademarks. Franchisees sell products/services under the franchisor's name.
McDonald's is a large and successful franchise operator.
Over 80% of McDonald's locations are franchises.
A typical UK McDonald's franchise generates approximately £4.5 million annually.

Bond Information

A bond is a contract offering interest in return for a loan.
Bonds are the oldest financial instruments in global economies.
Governments and companies issue bonds to raise capital.
Bonds promise to pay interest and return the initial investment at a future date (maturity).
Bonds have a fixed income return.

Franchise Bond Information

A franchise bond is when a franchise agrees to pay a fixed return and principal to an investor by a fixed maturity date .
These bonds often have security and insurance with successful underlying companies.

Bond Yield

Yield is the return that a bond pays to an investor, expressed as an annualised percentage.
Example: A 5% yield means an investor gets 5% of the original investment annually.

Bond Capital Growth

Bonds can generate capital growth alongside fixed income.
Potential for capital growth is higher for bonds that become listed.

Bond Security

Bonds provide varying degrees of security.
Security depends on the underlying company.
Bonds can have insurance from companies like Zurich, a large global player.

Accessing Bond Capital

Bond maturity dates and capital access points vary.
Some bonds are traded or sold immediately.
Most bonds offer capital access after 12 months.
Some companies offer capital access after 4 months.

Minimum and Maximum Investment

Minimum and maximum bond investment amounts vary by bond terms.
A previous McDonald's bond had a minimum of £100,000 and a maximum of £950,000.

Tax on Bond Income

Bond income is often taxed, either at source or paid gross.
Some bonds offer capital gains tax deferral.

Partnered Franchises

Simmonds & Simmonds work with large franchises like McDonald's, Starbucks, Pizza Hut, Wendy's.
All partnership franchises must meet GFA approval.

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Description

This quiz covers essential information on franchises and bonds, including their definitions, functions, and financial implications. Explore how franchises operate and how bonds serve as a critical financial instrument in the economy. Perfect for anyone looking to understand the intersection of franchising and bond investment.