Investments, Interest Rate, and Ren.pptx

INVESTMENTS, interest rates ppt

1. Lesson 4.1 Investments, Interest Rate, and Rental Concerns of Filipino Entrepreneurs

2. 2 Analyze the effects of contemporary issues such as migration, fluctuation in the exchange rate, oil price increases, unemployment, peace and order, etc. on the purchasing power of the people (ABM_AE12-Ie-h-8).

3. 3 Discuss the benefits of investing. Distinguish between different types of interest rates. Explain the benefits and concerns of a rental business.

4. 4 Why should we invest?

5. 5 Investment Investment is an asset or commodity obtained with the intention of producing sales or appreciation. Appreciation refers to an increase over time in the valuation of an object.

6. Investment Investment as a Form of Retirement Any new way of making money encourages you to increase your net worth. You are more prepared for any emergency and retirement. 6

7. 7 Interest Rate Interest rate is the amount a lender charges for the utilization of assets expressed as a percentage of the principal. The rate of interest is usually noted on an annual basis referred to as the annual percentage rate (APR).

8. Different Ways to Derive Interest Rates Nominal Interest Commonly known as fixed interest rate . This does not take the increase of commodity into the computation. It’s used mostly by the commercial banks for their loans. 8

9. Different Ways to Derive Interest Rates Formula for Computing Nominal Interest Step 1: Step 2: Step 3: 9

10. Interest Rate Example: Allen borrowed from a bank with the amount of ₱ 100,000 and he needs to pay it for twelve months with the interest rate of 10%. How much is the nominal interest and how much does he need to pay monthly? 10

11. 11 Interest = (₱100,000 x 10%) / 12 months = ₱10,000 / 12 months = ₱833.33 monthly interest Monthly payment without the interest = ₱100,000 / 12 months = ₱8,333.33 per month Monthly payment with interest = ₱8,333.33 + ₱833.33 = ₱9,166.66 for 12 months

12. Interest Rate Example: Katrina borrowed in a bank with the amount of ₱ 25 ,000 and she needs to pay it for ten months with the interest rate of 5 %. How much is the nominal interest and how much does she need to pay monthly ? 12

13. Different Ways to Derive Interest Rates Effective Interest Rate This is the interest rate received or charged on an investment, loan or other financial transaction owing to the compounding result for a defined period of time. 13

14. Interest Rate Formula for Computing Effective Interest 14 Step 1: Step 2: Step 3: Step 4:

15. Interest Rate Example: Allen borrowed from a bank with the amount of ₱ 100,000 and he needs to pay it for twelve months with the interest rate of 10%. How much is the effective interest and how much does he need to pay monthly? 15

16. Interest Rate 1st month Interest = (₱100,000 x 10%) / 12 months = ₱10,000 / 12 months = ₱833.33 interest Monthly Payment without the interest = ₱100,000 / 12 months = ₱8,333.33 16

17. Interest Rate Monthly Payment with interest = ₱ 8,333.33 + ₱ 833.33 = ₱ 9,166.66 Remaining Loan = ₱100,000 - ₱ 9,166.66 = ₱90,833.34 17

18. Interest Rate 2 nd month Interest = (₱90,833.34 x 10%) / 12 months = ₱9,083.33 / 12 months = ₱756.94 interest Monthly Payment without the interest = ₱90,833.34 /12 months = ₱7,569. 45 18

19. Interest Rate Monthly Payment with interest = ₱7,569.45 + ₱ 756.94 = ₱8,326.39 Remaining Loan = ₱90,833.34 - ₱ 8,326.38 = ₱82,506.95 19

20. Different Ways to Derive Interest Rates Floating Rate The dynamic rate is also known as this type of interest rate. Instead, its interest rates are based on a bench mark ( Consumer Price Index – CPI) such as the forex or the Philippine Stock Exchange. It does not have a set rate for the interest it puts on a commodity. 20

21. Interest Rate Example: A businessman decides to loan ₱50,000 from a bank with an interest rate of 2% payable within three months. The CPI rates for the next months are as follows: 2% for the first month, 2.5% for the second month, and 1.5% for the final month. Create a sample interest rate computation based on this problem. 21

22. Interest Rate Table 1. Sample Interest Rates Computation 22 Time CPI rate + Interest rate (in %) Interest amount 1st month 2% + 2% = 4% ₱2,000 2nd month 2.5% + 2% = 4.5% ₱2,250 3rd month 1.5% + 2% = 3.5% ₱1,750 Multiply w/ PA (50K x 4%)

23. 23 23 To start his ice cream business, Jake decided to loan ₱ 50,000 from the bank with a nominal interest rate of 5%, payable in six months. Solve for the interest and monthly payment with interest of Jake’s loan.

24. 24 Junnie loans ₱ 40,000 from a lending company to start his carwash business. The effective interest rate is 8%, payable within two months. How much is the interest per month and the monthly payment with interest on Junnie’s loan?