PPPT-1 MOI Introduction-to-Investments.pptx

Course Description: Introduction to Mathematics of Investment

This course provides a fundamental understanding of the mathematical principles and techniques used in financial decision-making and investment analysis. It covers the time value of money, including simple and compound interest, present and future value, and the computation of annuities and perpetuities. Students will learn how to analyze loans, amortization schedules, sinking funds, and depreciation, as well as compare nominal and effective interest rates. Practical applications include evaluating savings plans, investment options, and loan repayments. By the end of the course, students will be able to apply quantitative methods to solve real-world financial problems and make informed investment and borrowing decisions.

1. Introduction to Investments Prepared by: Virgita a. manipol, lpt MOI Southern Philippines institute of science and technology

2. Introduction to Investments Learning Objectives ------------------------------------------ --------------------------------------------------------------------------- . . . . . . . . . . . . . . . . . . . . . . . . . This chapter aims to achieve the following: d iscuss personal investments and finance; differentiate types of investments/investors and to effectively manage portfolios. introduce the concept of investments; and

3. V. A. MANIPOL, LPT Introduction to Investments What is the value of peso today? A peso can only buy you a candy. But 5 decades ago, a peso can buy you at least two packs of potato chips. This is inflation in action. The value of money is being reduced. Ms. Riza Mantaring, President and CEO of Sun Life Philippines Inc., dubbed it as “the silent thief”. Inflation happens with the general rise in the prices of goods and commodities. Inflation rate is 10%, generally means the value of your money is losing 10% of its value.

4. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Zimbabwe had an inflation rate of 231,150,888.87% in July 2008 known as hyperinflation . Inflation rate in the Philippines is not that high as the average inflation rate from 2009-2014 was 4.2% which means your money is losing only 4.2% of its value. “To beat inflation, invest a portion of your money as everyone needs and deals with money”. Investing – is the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit. Saving – is just the act of putting away some money for future use while investing is making that saved money work for you.

5. VIRGITA A. MANIPOL,LPT MOI Introduction to Investments Different Types of Investments

6. VIRGITA A. MANIPOL, LPT Math of Investment Introduction to Investments Various types of investments: Traditional – stocks and bonds; Exotic type – art collections; more speculative – bitcoins. Common Stocks A common stock , colloquially known as stock , is a security that represents small pieces of ownership in a business that trades in a stock market. Shares that represent ownership in a company. Ex. Apple Inc., Microsoft Corp., Coca Company, JFC A stock market is a place where or buyers and sellers congregate to trade goods. Small pieces of ownership in a business called stocks are being traded here. Ex. New York Stock Exchange, Phil. Stock Exchange

7. Example 1: Profit from Increase: Suppose you buy 100 shares of JFC at 200 per share Your total Investment=100x200=20,000 * After 1 year, the stock price rises to 250 per share * The value of your share=100x 250=25,000 *Your gain from stock price increase=25,000-20,000=5,000.

8. Example 2: Let’s say JFC declares a dividend of 2 per share. *Since you own 100 shares, you receive 100x2=200 in dividends Even if the price doesn’t change, you still earn income from owning the stock

9. Example 3: Both Price Increase +Dividends If the stock price went up to 250 and you also got 200 in dividends. *Total earnings=5,000 (price increase) + 200 (dividends)=5,200.

10. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Two types of Markets Primary market – is the market where businesses needing additional financing to expand their operations sell their shares to the investing public for the first time. This is a process known as Initial Public Offering (IPO). A process of “going to public”, and “listing on the exchange.” Secondary market – the first thing that comes to the public mind when they see or hear the word “ stock market ”. Someone who invests in the stock of a business is called stockholder or shareholder and considered a part owner of the business. Part owner is entitled to a portion of success of the business through capital appreciation and cash dividends.

11. Primary=First sale---Company gets money Secondary=Resale---Investors trade with each other.

12. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Capital appreciation happens when the current market price of the investment in stock is higher than its purchase price, making the investor money in the process if he chooses to sell these stocks. Cash dividend payment happens when the business pays out a portion of its earnings to its stockholders. 3 rd richest person in the world has a net worth of USD 72.7 billion today. Warren Buffett invested in stock market and turned an initial USD 105,000 into USD 25 million in just thirteen years.

13. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments In the Philippines, the Philippines stock market as measured by the Philippine Stock exchange Index (PSEi) as posted a return of 11.7% from the period of December 2006 to December 2014 with inflation averaged 4.23% over the same period. December 2006 to December 2008, the Philippine stock market recorded a negative return of -20.76% which makes stocks described as volatile and therefore risky.

14. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Guidelines on sound stock market investing: Think of stocks as pieces of businesses and not chips in the casino and determines ownership in a business. 1. Invest only the amount of money that you can afford to lose without that loss affecting your daily life. 2. Identify and invest in superior businesses. Research the business in question. Its annual reports, financial statements, how they make money, products and services they are selling, the industry and its financial status. 3. Do not touch what you do not understand. 4. Price and value are different. “Price is what you pay. Value is what you get”, Buffett. 5.

15. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Buy those superior business only when they are cheap or during crisis – be it a stock market crisis or a financial crisis or an economic crisis. “Buy when there’s blood on the streets”, Baron Rotschild. 6. Let the magic of compounding work by investing for the long term. 7. Buy some more of that stock if the price goes down after your initial purchase. 8. Do not put your eggs in one basket. This means your investments should practice diversification. 9. Sell your stocks once it has gained 50% or after three years, whichever comes first – Benjamin Graham, Buffett’s mentor. 10. Do not invest in Initial Public Offering without reviewing it. 11. If you want to invest, visit www.pse.com.ph and need to open SBA.

16. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Bonds Why invest in bonds? Because of safety of principal or capital and cash flow. Receiving a fixed amount of money every few months without working or lifting a finger. After sometime you get back the amount you invested in. Bond is a security that represents the debt of a government or business promising to pay a fix interest to the holder of the bond for a definite period of time. Bond is a debt security while stock is an ownership or equity security. Debt is prioritized over equity and payout.

17. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments If you are a bondholder , the government or a business will give your money back plus the regular interest payments called coupon. Terminologies that are unique and important to bond investing. Bond issuer - Borrower 1. Investor - Lender 2. Coupon/Coupon rate – Interest rate 3. Term/Tenor is the time it takes for all payments to be made by the issuer and received by the lender. 4. Face Value/Principal/Par Value is the borrowed amount. 5. Bill is a debt security that matures in a year or less. 6.

18. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Bond is a debt security that matures after a year or more. 7. Treasury is a term that signifies that the debt security is issued by the government. 8. Yield is the return that you would expect if you hold the bond for a year and expressed in percentage. 9. Bonds can come in two types: Government bonds , also known as treasury bonds, are issued by the bonds. If they are issued by a stable government, are considered risk-free investments as the government can print additional money or increase the tax rate pay off the debt. Corporate bonds are issued by a business.

19. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments The Philippine government issues three types of debt securities: The short-term Treasury Bills – 91, 182 and 364 days. 1. Fixed Rate Treasury Note ( FRTN ) – 5, 7, 10, 15, 20, and 25 years. 2. Retail Treasury Bond (RTB) – 3, 5, 7, 10, 15, and 20 years. 3. Foreign currency-denominated bond called ROP bond is guaranteed by the Philippine government. In January 2015, the government sold a 25-year ROP bond for USD2 million with a coupon rate of 3.95%. 4.

20. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Guidelines on sound bond investing : Identify and invest in stable governments. Research the economic growth, fiscal situation and debt to GDP ratio of the government in question, and invest only in stable governments. 1. Identify and invest in superior businesses. Research the business. 2. Pay attention to the issuer’s credit rating. 3. Hold the bond for the whole duration of the term. Leave the trading to the banks and professional bond traders. 4.

21. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Managed Funds Managed funds are companies or trust funds that pool money from various investors and through a fund manager, who in turn, invests that collected money in stocks, bonds, or a combination of various investments. In the Philippines, managed funds could either be mutual fund or a Unit Investment Trust Fund (UITF). Both mutual funds and UITF’s are classified as follows: Equity fund 1. Bond fund (also known as fixed-income fund and income fund) 2. Balance fund 3. Money market fund 4.

22. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Equity funds invests primarily in stocks, while a bond invests primarily in bonds. On the other hand, a balanced fund invests primarily in a combination of stocks and bonds . Money market funds invests primarily in short-term securities representing high-quality, liquid debt, and monetary instruments. c Mutual fund is classified as a corporation, and as such, is being regulated by the Security and Exchange Commission. Invest a minimum of 5% of the fund’s assets in liquid or semi-liquid assets but not limited to savings or time deposits with government-owned banks or commercial banks. - Has the same rights as shareholders or ordinary companies. -

23. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments On the other hand , UITF is a trust fund and is subject to stringent regulations imposed by the Banko Sentral ng Pilipinas (BSP) and is sold mostly by banks. An investor in a UITF is buying units of participation in the fund, and not considered a stockholder. - Shares of mutual funds and units of UITF’s are valued only once during the day using Net Asset Value Per Share (NAVPS) and Net Asset Value Per Unit (NAVPU). - It is calculated by dividing the total Net Asset Value (NAV) or the difference between the assets and liabilities of the fund by the number of outstanding shares or units. These are reported at the end of the business day. - Investing in managed funds can be had for as low as ₱5,000 -

24. VIRGITA A. MANPOL, LPT MOI Introduction to Investments Guidelines on sound managed fund investing: Look at the long-term track record of the fund, checking three-five years performance. 1. Read the Fund Prospectus (for mutual funds) and the Declaration of Trust (for UITFs) to see if it is aligned with your own investment objective. 2. Prospectus is a document that contains information on the objectives and policies of the fund, the strategies of the fund manager, investment risks, among others. A Declaration of Trust sometimes simply called Plan , also contains the same information regarding the Unit Investment Trust Funds. Let magic of compounding work for you by investing for the long-term and measured in years. 3.

25. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Different Types of Investors

26. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Stock and Bond Investor Stocks are volatile and risky. Stock investor will tend to be more aggressive investor than the money market, fixed-income bond investor. Real Estate Investor Real estate investors tend to hold on to real assets reflecting their desire in lock in money in real properties to hedge against significant inflation. Similarly, investors who prefer gold invest in this asset because it is real asset that is a safe hedge against inflation.

27. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Business Entrepreneur The investor-entrepreneur usually starts up a business for the following reasons. To express his creativity and talent To make use of his personal skills and knowledge To practice self-management To achieve for financial independence To tap unlimited opportunities and reach unlimited financial benefits

28. VIRGITA A. MANIPOL, LPT MOI Introduction to Investments Building your own business through franchising. Franchising refers to the method of practicing and using another’s perfected business concept, Philippine Franchise Association. In a franchise relationship, the franchisee is granted the right to market a product or a service under a marketing plan or a system that uses the trademark, name, logo, and advertising owned by franchisor. For more information about franchising, you may visit http:/www.pfa.org.ph/index.php.

29. VIRGITA A. MANIPOL. LPT MOI Introduction to Investments END

30. 1. What type of investment involves buying shares of a company to earn dividends and capital gains? A. Bonds B. Stocks C. Real Estate D. Savings Account

31. 2. What is a low-risk investment option that pays fixed interest over time? A. Stocks B. Mutual Funds C. Bonds D. Cryptocurrencies

32. 3. What type of investment involves putting money into physical property such as houses or land? A. Real Estate B. Commodities C. Stocks D. Bonds

33. 4. What kind of investor prefers short-term profits and frequently trades securities? A. Passive Investor B. Day Trader C. Long-term Investor D. Conservative Investor

34. 5. What is an investment fund that pools money from many investors to buy a diversified portfolio? A. Exchange-Traded Fund (ETF) B. Mutual Fund C. Real Estate Trust D. Savings Account

35. 6. What type of investor aims for long-term growth and holds investments for several years? A. Day Trader B. Speculator C. Long-term Investor D. Venture Capitalist

36. 7. What type of investment is characterized by high risk but the potential for high returns, often in new businesses? A. Bonds B. Venture Capital C. Savings Account D. Index Funds

37. 8. What investment type involves trading goods like gold, oil, or agricultural products? A. Stocks B. Commodities C. Mutual Funds D. Real Estate

38. 9. What is the term for investors who prefer to invest in stable companies with consistent dividends? A. Growth Investors B. Value Investors C. Speculators D. Day Traders

39. 10. What type of investor invests small amounts regularly regardless of market conditions? A. Lump-sum Investor B. Dollar-Cost Averager C. Speculator D. Arbitrageur

40. 11. What investment offers ownership in a company and voting rights in shareholder meetings? A. Bonds B. Stocks C. Real Estate D. Mutual Funds

41. 12. What type of investment is insured and offers low returns but high liquidity? A. Savings Account B. Stocks C. Real Estate D. Venture Capital

42. 13. What type of investor is willing to accept significant risk for the chance of substantial returns? A. Conservative Investor B. Speculator C. Income Investor D. Passive Investor

43. 14. What type of investment pools money and trades like a stock on an exchange? A. Mutual Fund B. Exchange-Traded Fund (ETF) C. Real Estate D. Bonds

44. 15. What is the main goal of an income investor? A. Capital Appreciation B. Earning Dividends or Interest C. Short-term Trading D. Speculation