ADM Bus Fin Module 5 Lesson 1 The Different Types of Investments PDF

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Senior High SchoolSenior High SchoolBusiness FinanceQuarter 2 – Module 5: The definition,purpose, kinds, advantages, anddisadvantages and the risks ofinvestmentLesson 1 – The Different Types of Investments.Senior High SchoolWriter:ROSARIO D. LOPEZ####### MT-I Becuran High SchoolEditors: JANE P. VALE...

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Senior High School h School Senior High School

Business Finance Quarter 2 – Module 5: The definition, purpose, kinds, advantages, and disadvantages and the risks of investment Lesson 1 – The Different Types of Investments.

Writer:

ROSARIO D. LOPEZ MT-I Becuran High School Editors: JANE P. VALENCIA, EdD – Math/ABM Supervisor CHAIRMAN ELSA A. LAQUINDANUM – MT- I CHRISTINA P. SANTOS – MT- I

What I Need to Know

This module was designed and written with you in mind. It is here to help you master the Different Types of Investments. The scope of this module permits it to be used in many different learning situations. The language used recognizes the diverse vocabulary level of students. The lessons are arranged to follow the standard sequence of the course. But the order in which you read them can be changed to correspond with the textbook you are now using.

After going through this module, you are expected to: 1. Compare and contrast the different types of investments. 2. Differentiate investment according to its type and features. 3. Enumerate advantages and disadvantages of the different types of investments.

What I Know True or False: Write True if the statement is correct and False if it is wrong.

___________________1. The decision to establish an investment plan is an important first step to accomplishing your financial goals. ___________________2. There are two types of stocks – common stocks and preferred stocks. ___________________3. A short-term investment objective is defined as one that will be be accomplished within a period of two to five years. ___________________4. An emergency fund is a certain amount of money that can be obtained quickly in case of immediate need. __________________ 5. Stock prices fluctuate due to competition and movements in market prices. __________________ 6. Liquidity is the ease with which an asset can be converted to cash without substantial loss in peso value. __________________7. Preferred stock represents the most basic form of corporate ownership. __________________8. A line of credit is a short-term loan that is approved before the money is actually needed. __________________9. One of the major assumptions in investment is that investors base their decisions strictly on expected return and risk factors. __________________10. Bondholders generally receive interest payments every six months.

Lesson The Different Types of Investments 1 An investment is any type of asset that is acquired by an investor with the intent to utilize it to generate income and eventually accumulate wealth. Finance professionals view investment as a monetary asset, like a bond, a stock or any type of financial instrument which is purchased and in due time will be sold, hopefully at a higher price.

For instance, if the stocks were bought at P200 per share and after one year the investor was able to sell them for P300 per share, then the investor would have earned P100 per share. If there is a total of 1,000 shares, then the profit would be P100,000.

What’s In

Stretch Your Financially Inclined Mind Arrange the jumbled words below to find the terms being described by the clues provided below. These finance terms and concepts will be useful for you as you study the lessons for this module. 1. RUNSTER

= _______________

2. DAMAGEN NUDFS

= _______________

3. REVFITINOSAIDIC

= _______________

4. REDHASHEROL

= _______________

5. DILEY

= _______________

Here are your clues: 1. It is the amount of money earned from investments. 2. Are companies or trust funds that pool money from various investors through a fund manager, who in turn, invests that collected money in stocks, bonds, or a combination of various investments. Managed funds

3. This means that investors who don’t have enough money can have the opportunity to buy different types of investments through pooling of funds of other investors. 4. Someone who invest in the stock of a business. 5. The return that you would expect if you hold the bond for a year and is expressed in percentage.

Notes to the Teacher The teacher must take into considerations the essential skills needed in the development of this competency including the background knowledge which may reinforce learning. This module will help the learners link the gap of learning to achieve mastery of the lesson.

What’s New FINDING WORDS: Let’s raise your level of investment skills. Draw a line connecting the letters to form words suggested in the box.

1. Preferred 2. Securities 3. Investments 4. Bonds 5. Funds

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What is It Different Types of Investments and their Features: Types of Investments

Features

1. Investing in a Bank

Earns minimal interest, easily withdrawable, least

1.1 Savings account

risky, insured with PDIC up to P500,000.

1.2 Time deposit

Higher interest, withdrawal after the fixed time, i.e. 90days, one year, etc.,

2. Investment in Bonds

Like an IOU (I owe you) issued by a government or company with fixed interest rate-called coupon.

3. Investment in Shares

Like buying a small part of a company, earnings

of Stocks

through dividends and capital gains as price increases.

4. Managed funds

An investment company, which pools the money of various investors and invest that money in bonds, stocks or a combination of various investments.

5. Investment in Property

Can either be real property (real estate) or tangible personal property (gold, precious metals, artworks,etc.)

Advantages and Disadvantages of the Different Types of Investments: Types of Investments 1. Investing in a Bank

Advantages

Disadvantages

Security-insured by PDIC

Lower returns – 1% or less for

Liquidity for savings account

savings, 2-3% time deposits Liquidity for time deposits

2. Investment in Bonds

Safest - with fixed interest

With fixed term cannot be

Lending money to a company withdrawn before maturity or for expansion of business, at a lower amount. which

contributes

to

economic growth 3. Investment in

Share in profits in the form of

Dividends

Shares of

dividends

board declaration

Stocks

Capital gains due to increase During liquidation, creditors in market prices

dependent

have first claim on assets

on

4. Managed funds

Diversification, ease of entry, Fees, convenience, management

performance

not

fund guaranteed, lack of control, and

low taxation

investment amount. 5. Investment in Property

Price appreciation for real

Long term process for profits

property. Safest investment

to be realized.

What’s More

Types of Investments: As depicted by the image, choose which of the following is your investment option and explain your answer by highlighting its features and advantages:

What I Have Learned 1. An investment is any vehicle into which funds can be placed with the expectation that they will generate positive income and/or increase in value. 2. The following are types of investments: investing in banks, bonds, shares of stocks, managed funds and investment in property.

3. Each type of investment has its own unique features , advantages and disadvantages in terms of security, returns, terms, liquidity , diversification, convenience, fees and taxation. 4. There are a lot of types of investment to choose from. Some are perfect for beginners, while others require more experience. Each type of investment offers a different level of risk and reward. 5.

Investors should consider each type of investment before determining an asset allocation that aligns with their goals.

What I Can Do Case Study Your mother, who is an OFW, is coming home in six months. The last time you spoke to her via online video call, she asked you to suggest three small businesses to invest in. She said that she has allotted P500,000 as capital that would be divided between the three businesses that you will recommend. You scribbled some possible businesses and came up with the following options: Possible Business

Estimated Initial Capitalization

1. Barbershop

P 180,000

2. Beauty parlor

140,000

3. Buy and sell of ready-to-wear clothes

75,000

4. Carinderia 5. General merchandise store

90,000 150,000

6. Milkshake business

75,000

7. Pizza stand franchise

120,000

8. Siomai stand franchise

200,000

9. Small bakery

200,000

10. Small grocery store

100,000

Draft an e-mail for your mother containing the following: 1. The top three recommended businesses that you would recommend to your mother.

2. Give at least three reasons as to why you chose the business you have recommended, which include your opinion on which you think would be most profitable, feel free to quantify your opinion if you wish but this is not necessary. 3. Give at least two disadvantages for each business recommended.

Assessment Multiple Choice. Encircle your answer. 1. What is a bond? A. It is a security that represents partial ownership in a business. B. It is a security that represents the debt of a government or a business that promises to pay a fixed amount. C. It is a security that represents the equity of a government or a business that promises to pay a fixed interest. D. None of the above. 2. Which is TRUE of money market mutual funds? A. Enable individuals and small businesses to invest indirectly in moneymarket instruments. B. Are available only to high net-worth individual C. Are involved in acquiring and placing mortgages D. Are also known as finance companies 2. A business owned by two or more people and operated for profit. A. Cooperative

C. Partnership

B. Corporation

D. Sole Proprietorship

3. An entity created by law owned by shareholders. Overall objective of a shareholder should be wealth maximization A. Cooperative

C. Partnership

B. Corporation

D. Sole Proprietorship

5. Rational investors will seek efficient portfolios because these portfolios are optimal based on: A. Expected return

C. Risk

B. Expected return and risk

D. Transaction cost

6. Most investors are assumed ____________________.

A. Risk averse

C. Risk moderators

B. Risk neutral

D. Risk seekers

7. Based on recent history, an investor would probably have a lower risk level with portfolio consisting of ________________________________________. A. All bonds

C. Impossible to tell

B. All stocks

D. Some stocks and some bonds

8. Who will decide on the declaration of dividends in a corporation? A. The board of directors of the firm B. The president of the company C. The shareholders of the corporation D. The stock exchange on which the stock is listed 9. What is the difference between shares and bonds? A. Bonds represent ownership whereas shares do not. B. Shares and bonds both represent equity. C. Shares and bonds both represent liabilities. D. Shares represent ownership whereas bonds do not. 10. How should one think of stocks? A. One should not think of stocks as being synonymous with a good business B. One should think of stocks as pieces of businesses. C. One should think of stocks as chips in the casino D. Both A and B.

Additional Activities

Fast Learning Exercise: Research Work: Direction/Required: By group or individual Font: 14, Times New Roman; Double Space, Minimum of 5 Pages Format: 1.

Introduction

II.

Body

III.

Summary

IV.

References: If thru internet, please indicate the web site Ex. https://en.wikipedia.org/wiki/Means _of_production Book references: Ex. Author, Title of the book, place published, year

Research topic: Research on what is the most invested field from the year 2017 to 2018. (Example: Real estate, stocks)...