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Senior High School
BUSINESS FINANCE
Module 5 - Quarter 2
Type of Investment
Department of Education • Republic of the Philippines
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Business Finance
Alternative Delivery Mode
Module 5- Quarter 2: Type of Investment
First Edition, 2020
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Published by the Department of Education
Secretary: Leonor Magtolis Briones, PhD
Undersecretary: Diosdado M. San Antonio, PhD
Assistant Secretary: Alma Ruby C. Torio, PhD
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Business Finance
Quarter 2 – Module 5:
Types of Investment
This instructional material was collaboratively developed and reviewed
by educators from public and private schools, colleges, and or/universities.
We encourage teachers and other education stakeholders to email their
feedback, comments, and recommendations to the Department of Education
at action@deped.gov.ph.
We value your feedback and recommendations.
Department of Education • Republic of the Philippines
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TABLE OF CONTENTS
Page No.
Cover page
II
Table of Contents
IV
Overview
V
General Instructions
V
Lesson 1: Different Types of Investment
1
What I Need to Know?
1
What I Know
1
What‟s In
2
What‟s New?
3
What is it?
3
What‟s More?
8
What I Have Learned?
8
What Can I Do?
9
Assessment
10
Additional Activities
10
Answer Key
12
References
13
IV
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OVERVIEW
This Chapter introduces the basic concept of investing and web like decision facing
the individual investor. It presents a brief overview of the many investment alternatives,
rewards and problems facing investors in today‟s environment. It also aims to provide reader
with an understanding of basic investment that will help individual in investment decisions.
GENERAL INSTRUCTIONS
For the learners:
To be guided in achieving the
objectives of this module, do the
following:
For the teacher:
To facilitate and ensure the students‟
learning from this module, you are
encouraged to do the following:
1. Read and follow instructions
carefully.
2. Write all your ANSWERS in
your Activity Book
3. Answer the pretest before
going through the lessons.
4. Take note and record points for
clarification.
5. Compare your answers against
the key to answers found at the
end of the module.
6. Do the activities and fully
understand each lesson.
7. Answer the self-check to
monitor what you learned in
each lesson.
8. Answer the posttest after you
have gone over all the lessons.
1. Clearly communicate learning
competencies and objectives
2. Motivate through applications
and connections to real life.
3. Give applications of the theory
4. Discuss worked-out examples
5. Give time for hands-on
unguided classroom work and
discovery
6. Use formative assessment to
give feedback
7. Introduce extensions or
generalizations of concepts
8. Engage in reflection questions
9. Encourage analysis through
higher order thinking prompts
10. Provide alternative formats for
student work
11. Remind learners to write their
answers in their Philosophy
Activity Notebook
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Investment help us earn and at the same time exercise our business and
entrepreneurial skills to be keener about the different business opportunities that area
available around us. It is not enough for a person to have enough cash or assets; part of
being financially mature is having that careful observation and being able to grab different
opportunities to earn.
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Different Types of Investment
What I Need to Know
Learning Objectives
In this lesson, you will:
1. Identify the types of investments particularly bank deposits, insurance, real
state, mutual funds and stocks and bonds.
2. Indicate the advantages and disadvantages of each type of investment.
3. Explain the risk inherent in each type of investment.
Multiple choice. Encircle the letter of the best answer.
1. Which of the following investments do not earn interest?
a. Savings account
c. Bonds
b. Current account
d. Time deposit
2. Which of the following is not an example of a deposit investment?
a. Savings
c. Current
b. Mutual funds
d. Time deposit
3. The person that manages a person‟s mutual fund
a. Creditor
c. Broker
b. Bondholder
d. Stockholder
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4. These payments are needed to maintain an insurance account
a. Interest
c. Premium
b. Dividends
d. Capital gains
5. What is the income earned on a bond?
a. Interest
c. Premium
b. Dividends
d. Capital Gains
6. What do you call an owner of a company‟s stocks?
a. Stockholder
c. Broker
b. Bondholder
d. Creditor
7. What is the income earned on a stock?
a. Interest
c. Dividend
b. Premium
d. Deposit
8. What is the strategy to earn short-term income from stocks?
a. Buy high sell low
c. buy high sell high
b. Buy low sell high
d. buy low sell low
9. These are tangible assets held as investments
a. Deposits
c. Stocks and bonds
b. Funds
d. Hard assets
10. What is the income earned on a building?
a. Interest
c. Rent
b. Dividend
d. Credit
The word investment brings forth visions of profit, risk,
speculation, bankruptcy and wealth. The dramatic changes in
securities market, the proliferation of new investment products
resulting from financial engineering, the continuous changes
in the tax rules are examples of additional factors that
investors must consider in developing and implementing
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strategies.
Likewise, it would be best to remember that the investment medium or vehicle must
ensure that the money will be available when it is needed and the investment money should
grow because a peso‟s real value today is greater than a peso‟s value tomorrow in a world
of inflation.(Bus. Finance Principles and Application,2017)
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What you will do
Activity 1.1: “My weekly budget”
Direction: Answer the following questions and compute your daily expenses for a week.
1. Where does my money came from?
2. Where does my money go?
3. How much do I save?
Allowance
Expenses
Savings
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
4. Where do I put my savings?
Lesson 5: Types of Investment
What is investment?
1. Investment opportunities should be grabbed only when
you have extra resources available for such, but it does not always
mean that it should always be grabbed. If you are only operating
within your means, learn to prioritize; investment can take a back
seat first. After all, these opportunities are not always once in a
lifetime. If you missed one today, you could grab the next one soon
enough. You just need to keep your eyes open.
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2. Investment should not be your main source of income. Unless you are a
stockbroker, an insurance salesman. Or an investment banker, you should not heavily rely
on the income coming from your investment. One good reason is that your investment
generate income and/or cash flows that are largely independent from your main line of
business. Heavy reliance on the inflows coming from these assets would create a „feast or
famine‟ condition. This means heavily relying on the resources that these assets might
generate, given that they do not produce regular cash flows, might make you very
prosperous one moment and then very unfortunate the next.
3. Investments require additional risk-taking. Investments are quite risky asset, a
person planning to invest must be able to learn how to take risks. It is from these risks that
the investor earns.
Different Types of Investments will be grouped into three (1) fixed income and equities (2)
alternatives to fixed income and equities, (3) other investment assets
1. Fixed income and equities
Investment Type
Stocks (Equity)
“Type of security
that
signifies ownership in a
corporation and represents a
claim on part of the
corporation‟s assets and
earning”
Bank
Deposits
(Fixed
Income) “Money placed into
a banking institution for
safekeeping”
- common type of investment
- the availability of funds also
depends on the investment
opened.
Types of Bank Deposit
· Current account/ Checking
account - do not earn
interest.
· Savings account - earns
interest
but
not
that
significant, but the most
common among individuals.
· Time deposit account earn the highest interest
rate. It is not always
available for withdrawal. It is
evidenced by a certificate of
deposit which can be bought
Advantages
· Unlimited Upside
Disadvantages
· No guaranteed returns.
· Riskiest of all assets (can
lose even more than 50% of
their money in one day)
·
Known income based on
outstanding principal and
current interest rate
·
Shorter, if any, holding
period vs. bonds
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·
Lower interest income vs.
Bonds
·
Settlement risk if the bank
closes.
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or sold by the depositor
themselves.
Bonds (Fixed Income)
“Debt investments where an
investor loans money to an
entity which borrows the
funds for a defined period of
time at a variable or
commonly, fixed interest
rate”
·
Known periodic payments
for a certain period
·
Cannot lose money if bond
investment is held until
maturity
2. Alternatives to fixed income and equities
Investment Type
Advantages
Mutual funds
“Give small investors access
“An investment that is made to professionally managed,
portfolios
of
up of a pool of funds diversified
collected
from
many equities, bonds and other
investors for the purposes of securities, which would be
difficult
(if
not
investing in stocks, bonds, quite
impossible) to create with
and similar assets”
small amount of capital”
- can be short or long term
Unit
Investment
Trust
Same as mutual funds.
Fund (UITF)
“Similar to a mutual fund but
Easier access because
is managed by banks
clients can open an account
in any branch of the bank
near them.
·
·
·
·
If not held until maturity
and pre-terminated, investor
can gain or lose depending
on the prevailing interest
rates at the time of pretermination. If interest rates
are higher, investor in bonds
can lose in the pretermination
Disadvantages
· Pay management fees
· Values can also fluctuate
just like the stock market
·
No shareholder rights for
investors such as dividends
and voting rights
No entry and management
fees.
Management Fee- the amount clients pay to the professionals who manage their mutual
funds, normally a certain percentage of portfolio value.
Dividends - distribution of the company‟s income to its shareholders.
Voting Rights - right to be heard on certain policies that the company wants to implement.
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3. Other investment assets
Investment Type
Currencies
“Generally accepted form of
money, including coins and
paper notes, which is issued
by
government
and
circulated
within
an
economy” (i.e. USD, EUR,
JPY)
Commodities
“A basic good used in
commerce
that
is
interchangeable with other
commodities of the same
type” (i.e. Gold, nickel, oil)
Advantages
·
Disadvantages
Largest market in the world
in terms of trading volume,
so much liquidity
·
Volatile and trades 24hours a day (must be closely
monitored)
·Unlike stocks, commodities, ·
etc., currency itself is a
medium of exchange which
people can use to transact
·
Natural hedge against
inflation.
·
Negatively correlated with
equities and bonds (may be
used for diversification)
· Hedge against geopolitical
Generally, uses margin
trading which allows clients
to be more than their capital
(may also be an advantage)
· Same as currencies
·
Impractical to invest
directly considering storage,
transportation and insurance
costs involved
risks
Real Estate
“Land and any improvements
on it” (i.e. land, house and
lot, condominiums)
·Generally,
appreciates
overtime because land get
scarce
·
Have
relatively
low
correlations with other asset
classes (may be used for
diversification)
·
Can be a source of
recurring rental income
·Huge
capital
needed,
financing can be difficult
·
Maintenance
of
the
property needed to preserve
its value
·Illiquid or difficult to sell
·
May also be a hedge
against inflation-linked rent
escalation clauses
Insurance
“A contract (policy) in which
an individual or entity
receives financial protection
or reimbursement against
losses from an insurance
company (i.e. Life insurance,
educational plan, VUL)
·Give
the
insured
individual/entity
the
cash/capital to deal with
unforeseen adverse financial
consequences
·
May provide certain tax
benefits (i.e. tax deductibility,
tax-free provisions)
·
Insurance premiums may
be costly
·
On some of traditional
insurance
plans,
no
sickness/death until a certain
age may mean not getting
any benefits at all (that‟s why
VUL‟s
are
now
very
prevalent)
·
Some
insurance
companies can go bankrupt
(i.e. College Assurance Plan)
if companies fail to factor
significantly
adverse
unforeseen circumstances
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Liquidity - ability to be converted into cash, the higher the liquidity the better.
Margin Trading - allows clients to trade more than their capital. It can magnify both earnings
and losses.
Inflation - general increase in prices.
Hedge - investment that reduces the risk of adverse price movement in an asset.
Diversification - process of investing in different kinds of assets to lessen exposure in
market/price volatility.
Geopolitical risks -” risks of one country‟s foreign policy influencing or upsetting domestic,
political and social policy in another country or region” (source: Columbia Threadneedle
Blog. (2016)
Correlation - how price of an asset moves with respect to another asset (i.e. positive
correlation if both assets move in the same direction, negative correlation if both assets
move in opposite direction)
Escalation Clause - agreement to raise prices in the future depending on certain
circumstances (i.e. increase in inflation leading to higher rental rates).
Insurance Premium - the amount paid on a regular basis to the insurance company in return
for the insurance/protection provided.
VUL - Variable Universal Life Insurance or a life insurance that offers both death benefit and
investment features.
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What Have I Learned
Activity 1.2: Matching type
Direction: Match the investment asset in column A with its advantage and
disadvantage in column B by writing the capital letter on the left side of column A.
(A) Investment Asset
(B) Advantage/Disadvantage
1.
Stocks
2.
Bank Deposit
A. On some of traditional plans, no
sickness/death until a certain age may mean
not getting any benefits at all
B. Shorter, if any, holding period vs. bonds
3.
Mutual Funds
C. Can be a source of recurring rental income
4.
Real Estate
5.
Insurance
D. Riskiest of all assets (can lose as much as
50% of their money in one day)
E. Pay management fees
Where to Invest?
→ the amount of cash should be considered. The investor must invest within his
means. Not all his extra resources must be used to buy investment, because there will
always be circumstances in which cash will be needed in case of emergency.
→ the risk inherent in the investment should be considered. Higher risk entails higher
return. Deposits are the least risky investments, but they earn the least, too. Real Estate
investments do earn a lot, but they are so risky that they could even cause a national
economy crash. We must not put all the money in one investment, so as to spread or
diversify risk. The good thing with managing risk or diversifying our investment, is if ever we
are not successful in one of the investment opportunities that we grabbed, we will still have
other investments left which would still help us earn.
→ We should consider our intent. We should ask ourselves if the intent is short term
or long term because that would greatly influence the kind of investment that he needs to
buy. If we would like to earn for a shorter term, maintaining a short-term deposit is enough.
We could also purchase some stocks, and then immediately sell them if the price increases.
Stocks and bonds can also be held as long-term investments. Bonds pay regular interest,
and stocks do earn dividends.
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What you will do
Activity 1.4
Direction: Answer the question Briefly.
Let us say you have Php1,000,000 today which you can invest for the
next 10 years, where will you put it? Choose at least 2 types of investment and
explain why?
If let „say you have Php1,000,000 today which you can invest for the next 10
years, where will u put it and why
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True or False
On the space provided, write TRUE if the idea being expressed is correct and FALSE if
otherwise.
1. investments generally earn passive income
2. Time deposit accounts do not earn interest.
3. Banks issue bank statement on savings deposit accounts.
future.
4. Insurance are set up for some specific purpose at some certain time in the
5. Mutual funds generally earn more than savings account.
6. Bonds earn dividends.
7. Dividends are always declared regularly
8. Stocks are generally riskier than bonds.
9. Real Estate investments earn rents
10. Hard assets are tangible assets.
Case Analysis
Elison is nearing his retirement. He was able to save up to a significant amount of
money and is planning to invest it to earn something when he has already retired. After
considering a lot of factors, he came down with two choices; buy stocks or construct a
building to be rented out to others as a dormitory.
Which option would work best for Eison and why?
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Congratulations!
You have completed your journey in this
lesson. You did a great job!
It’s now time to go on to the next
adventure…Good luck!
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1. True
2. False
6. False
7. False
3. False
8. True
4. True
9. True
5. True
10. True
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(Note: Insert upside down answer key here as shown in the samples below)
Answer Key
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Post test
Pretest
1. B
6. A
2. C
7. C
3. C
8. B
4. C
9. D
5. A
10. C
Activity 1.2
1. D
2. B
3. E
4. C
5. A
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Reference
Tugas, Dela Cruz, Paril, Tang. Business Finance. Vibal Publishing
Ma. Elenita Balatbat Cabrera BBA, MBA, CPA, CMA. Gilbert Anthony B. Cabrera BBA,
MBA, CPA. Business Finance Principles and Applications 2017 Edition, Published by GIC
Enteprise & Co.,INC,
Business Finance (ebook) Teaching Guide for Senior High School. Published by the
Commission on Higher Education, 2016
Arthur J. Keown, David F. Scott, Jr., John D. Martin, J. William Petty, Basic Financial
Management, Seven Edition, Prentice Hall International Editions
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For inquiries or feedback, please write or call:
Department of Education – Division of Misamis Oriental
Don A. Velez St., Cagayan de Oro City
Contact number: 0917 899 2245
Email address: misamis.oriental@deped.gov.ph
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