LEARNING ACTIVITY SHEET

Business Finance
Quarter 4, Week 1
Compare and contrast the different types of investments.

Introduction:
In our previous lesson you took on the perspective of a borrower but now you
will take on the perspective of a lender or investor. As an investor, you are
a unique player in the growth process of a business. Budding entrepreneurs
must take time to learn about the types of investors available and how to use
the best practices when dealing them with funds.
Investments require additional risk-taking. Investments are quite a risky
asset, so a person planning to invest must be able to learn how to take risks.
It is from these risks that the investor earns. Investments are classified into
the following categories: deposits, funds, bonds and stocks, and hard assets.
In this activity, you can describe how to allocate your savings on different
types of investments and appreciate the difference between investing in assets
that appreciate versus things that depreciate over time.

Learning Competency Code:

➢ Compare and contrast the different types of investments.

(ABM_BF12-IVm-n-23)

At the end of the lesson the learners will be able to:

K: Identify the types of investments.
S: Compare and contrast the different types of investment
A: Appreciate the importance on how to take charge of financial security.

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Directions: Analyze the question carefully Write only the letter of the correct
answer on a separate sheet of paper.

1. Which of the following is used to refer to any mechanism used to generate

future earnings?
A. Accounting
B. Investments
C. Financial Statements
D. Short-term funds

2. Which example is an investment commodity?

A. steel
B. a rare painting
C. microfinancing
D. shares in a company

3. Which type of investment is one of the most common and least risky ways
to store money for the short term?
A. Bond
B. Property
C. Saving account
D. Share

4. Jumbo has an unused apartment in Makati that he wants to be rented to

earn a profit. This is referred to as_________.
A. Jumbo’s home
B. Investment
C. Profit-sharing
D. Public practice

5. Which of the following is a disadvantage of investing in stocks?

A. Pay management fee.
B. Huge capital needed.
C. No guaranteed returns.
D. Settlement risks if the bank closes.

6. What is a volatile investment account?

A. An investment that is fairly low risk
B. An investment that gains value slowly over timed
C. An investment that requires a high volume of investors.
D. An investment that can change quickly without warning.

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7. What piece of information is most helpful when comparing investments?
A. the ROI percentages
B. the ROI dollar amounts.
C. the total return dollar amount.
D. the initial investment amounts.

8. How does an equity investor make money?

A. lending money and charging interest.
B. selling many investments at the same time.
C. depositing money in compounding accounts
D. selling an investment for more than they paid for it.

9.Which of the following is not an example of investment

A. Putting 500 in a piggy bank hidden under the bed.
B. Construction of facility used to produce goods.
C. Purchase of eggs
D. Purchase of equipment to raise total newspaper output.

10. Which of the following is correct?

I. An old house that is repaired and rented out monthly is called an
investment.
II. The Sayat Family lives in a house in Talisay. Their house is also
known as an investment.

A. Only Statement I is correct

B. Only Statement II is correct
C. Both Statement I and II are correct.
D. Both statements I and II are incorrect.

Reflection:

• Supposing you have PHP1 million, where will you put it?
• Are you aware of alternative investment options (stocks, bonds, mutual
funds, etc.)?
• Are you familiar with investment scams (double-your-money, high-yield
investments, etc.)?

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Examine the following tables : (Table 1 and Table 2) and decide which one
would your prefer, those which grow your money or those which lose value?

Table 1; Comparison of Investment Types Over-Time with sample results

Show how savings (i.e P10,000) could have grown under the different types
of investment.

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 Lesson Compare and contrast the different types of investments.
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Types of Investments

The 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 Advantages Disadvantages
Unlimited upside
Stocks (Equity) “Type of
security that signifies •No guraranteed returns.
ownership in a corporation Riskiest of all assets (can
and represents a claim on lose even more than 50%
part of the corporation's of their money in one day)
assets and earnings”

• Known income based on

Bank Deposits (Fixed • Lower interest income vs.
outstanding principal and
Income) “Money placed bonds
current interest rate
into a banking institution • Settlement risk if the
• Shorter, if any, holding
for safekeeping” bank closes
period vs. bonds
If not held until maturity
Bonds (Fixed Income)
and predeterminated,
“Debt investments where
• Known periodic payments investor can gain or lose
an investor provide money
for a certain period of time depending on the prevailing
to an entity which borrows
• Can’t lose money if bond interest rates at the time of
the funds for a defined
investment is held until pre-termination. If interest
period of time at a variable
maturity rates are higher, investor in
or commonly, fixed interest
bonds can lose in the pre-
rate
termination

You can use your money through the following investments:

Stocks
• Go to a stock brokerage firm (i.e., COL Financial, AB Capital Securities,
etc.) or a bank with a stock brokerage arm (i.e. LBP, Trade, First Metro
Securities, etc.) and open a stock market account by signing the necessary
account opening forms.
Minimum capital amount, depending on the broker, will be required to be
deposited to successfully open the account (i.e. PHP5,000 for BPI Trade,
PHP10,000 for AB Capital Securities,
etc.).
• Most of these stock brokerage firms now provide online access to their
client’s stocks account (i.e., www.colfinancial.com, www.bpitrade.com,
www.abcapitalsecurities.com.ph, etc.).

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Bank Deposits
• Go to a bank (BDO, LBP, DBP, etc.) and open a bank account (savings,
time deposit, etc.) by signing the necessary account opening forms.
• Minimum amounts will also be required depending on which bank and
the type of bank deposit they want to open.
• Some banks also now offer online access to their client’s bank accounts
(i.e.www.bpiexpressonline.com, www.bdo.com.ph, www.lbpiacces.com,
etc.) where they can monitor their account, pay bills, transfer funds, etc.
via internet.

Bonds
• Same as bank deposits, go to a bank and sign the necessary bond
acquisition forms.
• Minimum purchase of bonds is normally higher relative to stocks and
bank deposits.
• Clients may also view their bond’s performance online depending on
which bank they bought it from

Definitions:
• 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
toimplement.

Mutual funds
• Go to an insurance company or a financial institution that offers
mutual funds (i.e., Phil equity, Sunlife, Manulife, etc.) and sign the
necessary
account opening forms.
• As with stocks, minimum amounts will be required to successfully open
the account.
• Some of these financial institutions also provide online access to
monitor their mutual fund performance.

Unit Investment Trust Fund

• Same procedures as a mutual fund except that UITF’s are accessed
through banks.

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3. Other investment assets
Investment Type Advantages
• Largest market in the
Currencies “Generally world in terms of trading
accepted form of money, volume, so much liquidity
• Volatile and trades 24-
including coins and paper • Unlike stocks,
hours a day (must be
notes, which is issued by a commodities, etc.,
closely monitored)
government and circulated currency asset itself is a
within an economy” medium of exchange which
people can use to transact.
• Natural hedge against
Commodities “A basic
inflation
good used in commerce
• Negatively correlated with
that is interchangeable with
equities and bonds (may be
other commodities of the
used for diversification)
same type” (i.e. gold,
• Hedge against geopolitical
nickel, oil)
risks
• Generally appreciates
over time because land
gets scarce
• Have relatively low
correlations with other
Real Estate “Land and any
asset classes (may be used
improvements on it” (i.e.
for diversification)
land, house and lot,
• Can be a source of
condominiums)
recurring rental income
• May also be a hedge
against inflation because of
inflation-linked rent
escalation clauses
Insurance “A contract • Gives the insured
(policy) in which an individual/entity the
individual or entity receives cash/capital to deal with
financial protection or unforeseen adverse
reimbursement against financial consequences
losses from an insurance • May provide certain tax
company” (i.e. life benefits (i.e. tax
insurance, educational deductibility, tax-free
plans) provisions)
•May provide certain tax
Properties like vehicles,
benefits (i.e. tax
computers, and office
deductibility-depreciation
equipment, machinery, and
expense)
heavy equipment.
• May provide income
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Disadvantages
• Same as currencies
• Impractical to invest
directly considering
storage, transportation and
insurance costs involved
• Huge capital needed,
financing can be difficult
• Maintenance of the
property needed to
preserve its value
• Illiquid or difficult to sell
• 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
•The initial costs to
purchase an investment
property are normally very
high.
•It may take a long time to
sell the property. Especially
when you are facing
financial hardship and you
need to quickly sell the
property, you may need to
sell it at a lower price.
• It depreciate value
Definitions:
• 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 movements 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).
Columbia Threadneedle
Blog. Retrieved 2 May 2016,
from http://
blog.columbiathreadneedle
us.com)
• 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 the 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.
These investment assets can be through the following:
Currencies and Commodities
• Open a foreign currency/forex account (i.e., oanda, fxcm, cboe, etc.)
online.
• Minimum amount required for forex accounts vary and are usually
higher vs. stocks and usually in
USD.
• Investments may also be monitored online.
Real Estate
• Contact/visit real estate companies directly (i.e. Ayala Land, Mega
world, SM Prime, etc.).
• Contact real estate brokers.
Insurance
• Contact/visit insurance companies directly (i.e., Sunlife, Prulife,
Manulife, etc.).
• Contact insurance agents.

Investment Risk
Successful investing is all about balancing risk with return.
The return part seems easy enough, you have seen the value of your
investment go up. However, investment risk is a bit more complicated than
you might think.

According to the dictionary, the risk is exposure to the chance of injury or

loss. As an investor, you will agree that when you invest your money in stocks,
real estate, or other assets you do not want to lose it.
So, the first and most obvious investment risk is the possibility that you could
lose all your money. The good news is that if you follow the basic rules in
investing the probability of losing your money is virtually zero. The bad news
is that you still get nervous when you see the value of your investment moves
up and down each day. The squat situation of crisis is called volatility, as
the price movement got more extreme the volatility of your investment is said
to increase. When the up and down movement got less extreme the volatility
is said to decrease. Well, the investment volatility can be scary, it can also
lead to a significant investment opportunity.

This is how it works. When prices start to fall and volatility is increasing in
the downward direction some investors panic, it deals with them like their
money is running down the rain, and if they do not sell now, they will end up
losing everything. This is the ideal moment to grab investment that prices
lower than it works. In short, volatility gives you the chance to buy an
investment on sale on the terrified investor you are playing in the market.
Therefore, is so important to keep your emotions in check when you make an
investment decision, panic can be very costly. Therefore, volatility is equal to
opportunity as long you follow the rules for building a strong portfolio.

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 Activity 1: Invest Wisely.

Directions: Allocate your P 1,000,000 among the following investment

alternatives (i.e., 10%, 20% ,30% ,50 %). Allocation should total 100%.
Below is the table, justify your chosen allocations. Use separate sheet of
paper for your answer.

Allocation Investments Why

______% stocks
______% bonds
______% Time deposit
______% Insurance Fund
______% Gold
______% Real Properties
______% Car
______% iPhone/

Questions:
1. Which would you prefer, equity or fixed income
2. Which among these investment assets would you consider and why
3. How do mutual funds differ from UITFs?
4. Why should one consider investing in other investment assets? What are
the advantages of doing so?

Rubrics for scoring:( total score-25 points)

5 3 1 0
Response is Response is Response does not No answer
relevant and somewhat answer the
well-written relevant questions

Activity 2: My 3,2,1 (6 points total)

a. Three (3) things I have learned. (3 points)

b. Two (2) things I found interesting. (2 points)
c. One (1) question I still have. (1 point)

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Multiple Choice:

Directions: Analyze the question carefully. Write only the letter of the correct
answer on a separate sheet of paper.

1. All of the following are included in Fixed Income, EXCEPT.

A. Bank deposits
B. Bonds
C. Stocks
D. Real Estate

2. Which of the following does not belong to Fixed income type of

investment?
A. bonds
B. stock
C. bank deposits
D. mutual funds

3. Which Investment assets where an individual receives financial

protection?
A. Commodities
B. Currencies
C. Insurance
D. Real Estate

4.Other investment includes all the following EXCEPT?

A. commodities
B. insurance
C. real estate
D. Stocks

5. Which of the following is one of the disadvantages of a bank deposit?

A. No guaranteed returns.
B. Settlement risk if the bank closes
C. Values can also fluctuate just like stocks.
D. Cannot lose money if a bond is held until maturity.

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6. All the following are advantages of Real Estate except?
A. maybe provided certain tax benefits.
B. can be a source of recurring rental income for diversification.
C. has relatively low correlations with other asset classes
D. generally appreciates overtime because land gets scarce.

7. How does an equity investor make money?

A. lending money and charging interest.
B. selling many investments at the same time.
C. depositing money in compounding accounts
D. selling an investment for more than they paid for it.

8. Peter is a risk-averse investor for a safe capital and a periodic plan to pay
it off. Peter should invest in _________.
A. bonds
B. business
C. stocks
D. savings account

9. Austin is a risk-taker. If he prefers the benefits of having partial

ownership in a company and the unlimited potential of rising stocks price,
he should invest in _____________
A. bonds
B. Business
C. savings account
D. stocks

10. Which of the following is not a kind ownership investment?

A. Gold
B. House in Camila village
C. 10-yeart bond in Camella
D. Stocks of astronaut company

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 12
EPS/Senior High Coordinator
IRENE G. AJOC, PhD
Reviewed and Checked:
Bislig City Division
Bislig City National High School
SHS Teacher III
Prepared by:
(4) (https://www.youtube.com/watch?v=3qv7E2yIiw4).
(3) quexbook business finance
Rex Bookstore.
(2) Cayanan, A. & Borja (forthcoming). Business Finance. Quezon City.
(1) Finance Websites
Resources
X. References /Resources
Activity 1 (Suggested Answers only – do not copy for reference
only
1. I prefer fixed income. Because equities are the riskiest of all
assets because of their price volatility. In the Philippine Stocks Exchange,
POST- clients can lose as much as 50% on a stock in one day. Reasons why
stock prices are volatile include uncertainties in company’s earnings,
TEST negative or positive market sentiment of investors, etc. And with these
great risks comes the potential for great upside for the risk-taker investor.
1. d
2. I will consider fixed income assets because this kind of PRE-
2.d investment are low-risk investments. Even if potential returns are low
relative to equities, it gives the risk averse investor known TEST
income/periodic payments. Note however that this is only true if the 1.b
3.c security is held until maturity. Default risk, which is the risk of the
counterparty not fulfilling obligation is also present in fixed income 2.a
4.d assets. Therefore, as an investor I must carefully analyze the issuer and
must be convinced about its financial stability before buying its debt
3.c
5.b security. 4.b
3. Mutual funds are offered by non-bank institutions while 5.c
6.a UITFs are offered by banks. Given that UITFs are offered by banks, they
are more accessible than mutual funds. Mutual funds on the other hand
6.d
7.d require management fees but provide the investors with shareholder 7.a
rights such as dividends and voting rights. Since the underlying asset of
8.a mutual funds can also be equity, returns are not guaranteed, and an 8.d
investor can also lose.
9.a
9.d 4. Note: Percentage of allocation may vary, and answer may vary: 10.a
They can put it in one investment instrument, or it can be a range.
10.c Whatever the answer is, there must be an explanation.