Professional Documents
Culture Documents
Finance Reviewer Kimarabaca
Finance Reviewer Kimarabaca
7. The projects that do not compete with other projects are called
________.
A. independent projects
CAPITAL BUDGETING -is the process that a business uses in Pre -Test
evaluating and selecting major projects or investment. True or False: Write True if the statement is correct and False if it
is wrong.
Tools in Capital Budgeting TRUE 1. The decision to establish an investment plan is an
1. Payback Method important first step to accomplishing your financial goals.
- It is a method that evaluates a project by measuring the time TRUE 2. There are two types of stocks – common stocks and
(usually expressed in years) it will take to recover the initial preferred stocks.
investments. FALSE 3. A short-term investment objective is defined as one
that will be be accomplished within a period of two to five years.
TRUE 4. An emergency fund is a certain amount of money MOD. 5.2 - Investment risk: Ways and means to minimize
that can be obtained quickly in case of immediate need. investment risk
TRUE 5. Stock prices fluctuate due to competition and
movements in market prices. RISK
TRUE 6. Liquidity is the ease with which an asset can be - is defined as a chance of loss. In finance, it is the chance that
converted to cash without substantial loss in peso value. the actual return would be different from the expected return on
FALSE 7. Preferred stock represents the most basic form of an investment.
corporate ownership. There are two fundamental types of risks:
FALSE 8. A line of credit is a short-term loan that is approved 1. Systematic Risk – has effects that are wider in scope. It is
before the money is actually needed. almost impossible for an investor to avoid this type of risk.
TRUE 9. One of the major assumptions in investment is that Examples are: natural disaster- a massive
investors base their decisions strictly on expected return and risk earthquake, a major political event- a coup de’ etat or a covid19
factors. pandemic.
FALSE 10. Bondholders generally receive interest payments every
six months. 2. Unsystematic Risk – also referred to as specific risk, which
affects only a small number of assets.
Examples would be a firm whose employees went on strike or a
Types of Investments and Its Features: major stockholder getting involved in a crime or scandal.
1. Investing in a Bank
- Savings account *Investors resort to diversification which is a risk management
- Time deposit technique wherein an investor includes a wide variety of assets or
~ Earns minimal interest, easily withdrawable, least investment products in his portfolio of investments to minimize or
risky, insured with PDIC up to P500,000. protect themselves from unsystematic risk.
~ Higher interest, withdrawal after the fixed time, i.e.
90days, one year, etc., Ways and Means to Minimize Investment Risks:
1. Determination of tolerance to different kinds of risk
2. Investment in Bonds - Understanding the type of risk, or the combination of types of
~Like an IOU (I owe you) issued by a government or risk, is essential in reducing those risks.
company with fixed interest rate-called coupon.
Two factors that can help determine the risk tolerance are:
3. Investment in Shares a. Net worth – is assets minus liabilities.
of Stocks b. Risk capital – is money that, if lost on an investment, won’t
~ Like buying a small part of a company, earnings impact the financial position and lifestyle.
through dividends and capital gains as price increases.
2. Conducting due diligence
4. Managed funds - This means making research about the investment instruments,
~ An investment company, which pools the money of checking out the investment’s history, earnings’ growth,
various investors and invest that money in bonds, management team and debt load.
stocks or a combination of various investments.
3. Diversification of investment portfolio
5. Investment in Property - Diversification is a risk management strategy of combining a
~ Can either be real property (real estate) or tangible variety of assets to reduce overall risk in an investment portfolio.
personal property (gold, precious metals, artworks,etc.) One of its purpose is portfolio risk management.
Personal finance
- is about meeting personal financial goals, whether it’s having
enough for short-term financial needs, planning for retirement, or
saving for your college education.
Pre-Test
1. It is a term that covers managing your money as well as saving
and investing.
C. Personal Finance
10. Practice thrift, but always be looking for Big Wins, best
illustrates what principle
of saving?
A. Large amounts matter more
11. Don’t let one slip-up drag you down also means:
B. Failure is okay
14. Your circumstances might not be your fault, but they're your
responsibility, best MONEY MANAGEMENT PRINCIPLES/CYCLE:
illustrate what principle of money management? AREAS OF PERSONAL FINANCE
D. You are the boss of you.
15. What concept is best explained by the statement, “Trust that - The main areas of personal finance are income, spending, saving,
you'll pick up investing, and protection. Each of these areas will be examined in
momentum in the future”. more detail below.
A. Action is the cornerstone of success
#1 Income
Income refers to a source of cash inflow that an individual
receives and then uses to support themselves and their family. It
is the starting point for our financial planning process.
#2 Spending
- Spending includes all types of expenses an individual incurs
related to buying goods and services or anything that is
consumable (i.e., not an investment).
- All spending falls into two categories: cash (paid for with cash on
hand) and credit (paid for by borrowing money). The majority of
most people’s income is allocated to spending.
#3 Saving
- Saving refers to excess cash that is retained for future investing
or spending. If there is a surplus between what a person earns as
income and what they spend, the difference can be directed
towards savings or investments.
#4 Investing
- Investing relates to the purchase of assets that are expected to
generate a rate of return, with the hope that over time the
individual will receive back more money than
they originally invested.
- Investing carries risk, and not all assets actually end up
producing a positive rate of return. This is where we see the
relationship between risk and return.
#5 Protection
- Personal protection refers to a wide range of products that can
be used to guard against an unforeseen and adverse event.