Grade

12

BUSINESS FINANCE
QUARTER 2 – MODULE 1

TYPES OF
INVESTMENT

1
Grade

12
Self-Learning Module in BUSINESS FINANCE

Lesson: Compare and contrast the different types of investment.

Quarter: 2 Week: 1 Day and Time: See Class program

Learning competency/ies:
• Identify the types of investments particularly bank deposits, insurance, real estate, hard
assets, mutual funds, and stocks and bonds.
• Indicate the advantages and disadvantages of each type of investment.
• Explain the risks inherent in each type of investment.
Learning Tasks:
Study Notebook Activity Sheet
✓ Pre-Test, pp.1 ✓ Activity 1-5 pp.8-10
✓ Developmental Activities p.6
✓ Post-test pp.6-7

I. INTRODUCTION

At the end of the unit lesson, the learners shall be able to:
• Describe how they want to allocate their savings on different types of
investments.
• Explain why they want such investment allocation based on the advantages and
disadvantages of each chosen investment type.

II. PRE-TEST

Directions: Write TRUE if the statement is correct or FALSE if the statement

is incorrect.

1. Some mutual funds are comprised of a combination of stocks from many different
sectors.
2. Buying a dividends is the easiest way for an investor to diversify.
3. Real estate can be a growth and an income investment.
4. You can purchase stock from any company you would like, if you have the money.
5. People who invest in the stock market will automatically make money.
6. Money is placed into a banking institution for safekeeping.
7. Depositors may recover up to 1 Million pesos per depositor from PDIC in case of
bank default/bankruptcy.
8. One of the disadvantages of mutual funds is the values can also fluctuate just like the
stock market.
9. Real estate can be a source of recurring rental income.
10. The sources of investment returns are dividends and interest.

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 III. A. DISCUSSION OF CONCEPTS

Lesson 1: Types of investment.

1. How savings (i.e. PHP10,000) could have grown under different types of investments.

Investment Type Holding Value of PHP % Return

Period 10,000 Today
Bank (Time deposit) 10 years PHP14,000 40%
Stocks (Universal Robina Corporation 10 years PHP140,500 1,305%
“URC”)
Stocks (DMCI Holdings, Inc. 12 years PHP3,204,87 31,949%
“DMC”) 8
Mutual funds (Philequity PSE Index 5 years PHP23,426 134%
Fund)
Mutual funds (Sunlife Prosperity 5 years PHP20,805 108%
Philippine Equity Fund)

2. How money loses value in buying material things such as toys, gadgets, etc.

Item Purchase Price Holding Value % Return

Period Today
iPhone 4 PHP29,200 (October 2011) 3.5 years PHP8,900 -70%
32gb return
PlayStation 4 PHP22,500 (November 1.5 years PHP18,000 –20%
2013) return
Toyota Vios PHP850,000 (December 7.5 years PHP300,00 -65%
2007) 0 return

Settlement Risk – risk that the bank may not be able to give back their deposit. Philippine
banks are normally insured by the Philippine Deposit Insurance Corporation (PDIC).
Depositors may recover up to PHP500,000 per depositor from PDIC in case of bank
default/bankruptcy.

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

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Stocks (Equity) • Unlimited Upside • No guaranteed returns.
“Type of security that signifies • Riskiest of all assets (can
ownership in a corporation and lose even more than 50%
represents a claim on part of the of their money in one day)
corporation's assets and
earnings”
Bank Deposits (Fixed Income) • Known income based on • Lower interest income vs.
“Money placed into a outstanding principal and bonds
banking institution for current interest rate • Settlement risk if the bank
closes
safekeeping” • Shorter, if any, holding
period vs. bonds
Bonds (Fixed iIcome) • Known periodic • If not held until maturity
“Debt investments where an payments for a certain and pre- terminated,
period of time investor can gain or lose
investor loans money to an
depending on the
entity which borrows the funds • Can’t lose money if prevailing interest rates at
for a defined period of time at bond investment is held the time of pre-
a variable or commonly, fixed until maturity termination. If interest
interest rate” rates are higher, investor in
bonds can lose in the pre-
termination

How to access these investment assets through the following:

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. BPI 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
• Most of these stock brokerage firms now provide online access to their client’s
stocks account

Bank Deposits
• Go to a bank (BDO, BPI, Metrobank, 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
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 • 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 from which bank
they bought it from.

2. Alternatives to fixed income and equities

Investment Type Advantages Disadvantages

Mutual funds “Give small investors access to • Pay management
“An investment that is made professionally managed, diversified fees
up of a pool of funds portfolios of equities, bonds and other • Values can also
collected from many securities, which would be quite fluctuate just like
investors for the purpose of difficult (if not impossible) to create the stock market
investing in stocks, bonds, with a small amount of capital”
and similar assets”
Unit investment trust fund • Same as mutual funds. No shareholder rights
(UITF) Similar to a mutual • Easier access because clients can for investors such as
fund but is managed by open an account in any branch of the dividends and voting
banks. bank near them. rights.
• No entry and management fees.

How to access these investment assets through the following:

Mutual funds
• Go to an insurance company or a financial institution that offers mutual funds (i.e.
Philequity, 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.

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 to implement.

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 3. Other investment assets

Investment Type Advantages Disadvantages

Currencies • Largest market in the world in • Volatile and trades 24-hours

“Generally accepted form of terms of trading volume, so much a day (must be closely
money, including coins and liquidity monitored)
paper notes, which is issued • Unlike stocks, commodities, • Generally uses margin
by a government and etc., currency asset itself is a trading which allows clients
circulated within an economy” medium of exchange which to bet more than their capital
(i.e. USD, EUR, JPY) people can use to transact (may also be an advantage)

Commodities • Natural hedge against inflation • Same as currencies

“A basic good used in • Negatively correlated with • Impractical to invest directly
commerce that is equities and bonds (may be considering storage,
interchangeable with other used for diversification) transportation and insurance
commodities of the same • Hedge against geopolitical risks costs involved
type” (i.e. gold, nickel, oil)

Real Estate • Generally appreciates over • Huge capital needed,

“Land and any improvements time because land gets financing can be difficult
on it” (i.e. land, house and lot, scarce • Maintenance of the
condominiums) • Have relatively low correlations property needed to
with other asset classes (may be preserve its value
used for diversification) • Illiquid or difficult to sell
• Can be a source of recurring
rental income
• May also be a hedge against
inflation because of inflation-
linked rent escalation clauses
Insurance • Gives the insured individual/entity • Insurance premiums may be
“A contract (policy) in which the cash/capital to deal with costly
an individual or entity receives unforeseen adverse financial • On some of traditional
financial protection or consequences insurance plans, no
reimbursement against losses • May provide certain tax benefits sickness/death until a certain
from an insurance (i.e. tax deductibility, tax-free age may mean not getting
company” (i.e. life insurance, provisions) any benefits at all (that’s why
educational plans, VUL) 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

How to access these investment assets through the following:

Currencies and Commodities

• Open a foreign currency/forex account (i.e. oanda, fxcm, cboe, etc.) online.

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 • 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, Megaworld, SM Prime,
etc.).
• Contact real estate brokers.

Insurance
• Contact/visit insurance companies directly (i.e. Sunlife, Prulife, Manulife, etc.).
• Contact insurance agents.

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”
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.

III. B. DEVELOPMENTAL ACTIVITIES

Activity 1 - Directions: On a separate sheet of paper, answer the following questions: (5 points
each)
1. Why would a risk-taker (likes to take risks) type of investor prefer equities over fixed
income?
2. Why would a risk-averse (likes to avoid risks) type of investor prefer fixed income over
equities?
3. How do mutual funds differ from UITFs?
4. If let’s say you have PHP1,000,000 today which you can invest for the next 10 years, where
will you put it and why?

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IV. POSTTEST

Activity I - Directions: Match the investment asset in column A with its

description in column B by writing the capital letter on the left side of column A.

(A) Investment Asset (B) Description

1 Stocks (Equity) A. An investment that is made up of a pool of funds

collected from many investors for the purpose of
investing in stocks, bonds, and similar assets.

2 Bank Deposits (Fixed B. Land and any improvements on it.

Income)

3 Mutual Funds C. Type of security that signifies ownership in a

corporation and represents a claim on part of the
corporation's assets and earnings.
4 Real Estate D. A contract (policy) in which an individual or entity
receives financial protection or reimbursement against
losses from an insurance company.

5 Insurance E. Money placed into a banking institution for safekeeping

Activity II – Sentence Analysis

Directions: Read the following statements below and identify whether:
A. Both statements are TRUE C. 1st statement is TRUE: 2nd statement is FALSE
B. Both statements are FALSE D. 1st statement is FALSE: 2nd statement is TRUE

1. - Currency asset itself is a medium of exchange which people can use to transact.
- Currency asset is volatile and trades 12-hours a day.
2. - A higher rate of return means a higher risk.
-All investments are risky.
3. - When savers make investments, they convert risk-free assets into risky assets.
-Cash or savings are risk-free assets.
4. - Stocks are the type of equity security with which most people are familiar.
-When investors buy stock, they owe a share of a company’s assets and earnings.
5. - Bonds and stocks are financial assets.
-Assets are things that are owned that have value.
6. - Businesses frequently offer property insurance benefits to their employees.

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Pre-test
1. True 2. False 3. True 4. False 5. False
6. True 7. False 8. False 9. True 10. False
Developmental Activity
1. Equities are the riskiest of all assets because of their price volatility. In the Philippine Stocks
Exchange, 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, negative or positive market sentiment of
investors, etc. And with these great risks comes the potential for great upside for the risk-taker
investor.
2. Fixed income assets are low-risk investments. Even if potential returns are low relative to equities,
it gives the risk- averse investor known income/periodic payments. Note however that this is only
true if the security is held until maturity. Default risk, which is the risk of the counterparty not
fulfilling his obligation is also present in fixed income assets. Therefore, an investor must carefully
analyze the issuer and must be convinced about its financial stability before buying its debt
security.
3. Mutual funds are offered by non-bank institutions while 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 require management fees but provide the investors with shareholder rights such as
dividends and voting rights. Since the underlying asset of mutual funds can also be equity, returns
are not guaranteed and an investor can also lose.
4. They can put it in one investment instrument or it can be a portfolio. Whatever the answer is,
there has to be an explanation.
Post-test- Activity I Activity II
1. C 2. E 3. A 4. B 5. D 1. C 2. A 3. D 4. C 5. A 6. B 7. D 8. D 9. C 10. C
Answer key:
other
-Most assets of the same type have negative covariances of returns with each
terms of risk and return.
10. - In an investment policy statement the objectives of an investor are expressed in
-Gold is a good investment.
9. - When the risk goes up, the return generally will go up.
younger and growing.
-The most aggressive mutual funds tend to be from, companies that are a little
paying off.
8. - Spending money, time toward future benefits for making more money is called
he is both saving and investing.
year she transfers ₱100,000 from her savings account to the fund. By doing this,
-Malou started a college fund for her daughter when she was 1 year old. Each
7. - Putting your money in savings account is very risky.
pay the damages because he has life insurance.
-When a customer slips on the wet floor in restaurant the owner doesn’t have to
REFERENCES
Cayanan, A. & Borja (forthcoming). Business Finance. Quezon City. Rex Bookstore. Civil
Teaching Guide for Senior High School, Business Finance, Published by the Commission on
Higher Education, 2016

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 WORKSHEET
Name:
Subject: BUSINESS FINANCE
Grade/Section:
Subj. Teacher: Week:

I. FORMATIVE ASSESSMENT

Test/Activity Score
A. Pre-Test PP.1
B. Post Test p.6-7

II. SUMMATIVE ASSESSMENT

Activity 1: Directions: Match the investment asset in column A with its

advantage/disadvantage in column B by writing the capital letter on the left side of column A.

(A) Investment Asset (B) Advantage/Disadvantage

1 Stocks (Equity) A. Disadvantage: On some of traditional plans, no

sickness/death until a certain age may mean not getting
any benefits at all
2 Bank Deposits (Fixed B. Advantage: Shorter, if any, holding period vs. bonds
Income)

3 Mutual Funds C. Advantage: Can be a source of recurring rental income

4 Real Estate D. Disadvantage: Riskiest of all assets (can lose as

much as 50% of their money in one day)

5 Insurance E. Disadvantage: Pay management fees

Activity 2: Directions: Write TRUE if the statement is correct or FALSE if the statement is
incorrect.
____ 1. Stocks represent ownership in a corporation.
____ 2. People who invest in stocks cannot lose their money.
____ 3. The price people pay for a stock is called a dividend.
____ 4. People who own stocks are guaranteed a return on the money they have invested in
stocks.
____ 5. Stockholders can reduce the risk on their stock investment by diversifying their
portfolios.
____ 6. One way stockholders make money is by selling their stock for more money than they
paid for it.

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____ 7. The only way stockholders make money is through dividend payments while they own
the stock.
____ 8. Corporations can raise money for their corporation by working with investment
bankers to issue stock.
____ 9. When you purchase stock, you are guaranteed a dividend from the company you
purchased stock from.
____ 10. One of the advantages of real estate is it can be a source of recurring rental income

Activity 3: Directions: Choose the letter corresponding to the correct answer for each of the
questions provided below. Write your answer on the space provided.

___ 1. Spreading your money among different savings and investments is called?
a. Compounding c. Risk tolerance
b. Diversification d. Risk-taking
___ 2. What is the purpose of a company issuing stock?
a. To increase the influence of the current owners of the company.
b. To exempt the company from paying taxes.
c. To grow equity interests that encourages diversification.
d. To raise money that can be used to grow the company.
___ 3. What is true about saving and investing?
a. They are essentially the same thing.
b. You can diversify better with savings options.
c. Saving is more risky than investing.
d. You have a greater chance of making more money investing than saving.
___ 4. What is the term that refers to how comfortable a person is with the ups and
downs of investing?
a. Diversification c. Risk tolerance
b. Mutual fund d. Compounding
___ 5. Which is false about dividends?
a. Companies that pay a dividend will continue to pay a dividend.
b. Dividends are the profits of a company, divided up to the shareholders.
c. If a company stops paying a dividends, their stock price will likely fall.
d. Dividends can increase or decrease.
___ 6. You become part owner of a company by?
a. Purchasing a company’s stock c. Purchasing a company’s bonds
b. Buying dividends of the company d. Becoming CEO of a company
___ 7. Which best described an income investment?
a. Less risky c. may provide a steady income
b. May also be a growth investment d. all of the above
___ 8. Which statement below is TRUE about mutual funds?
a. You can choose which stock to include in your mutual funds.
b. Mutual funds are convenient and professionally managed.
c. Mutual funds offer guaranteed returns.

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 d. There are fees or expenses associated with mutual funds.
___ 9. Which one of the following types of investments has the lowest risk and
lowest rate of return?
a. Stocks b. collectibles c. savings d. real estate
___ 10. Which refers to the amount paid on a regular basis to the insurance company in return
for the insurance/protection?
a. Par value c. Insurance premium
b. Monthly payment d. Insurance return

Activity 4: Direction: Identify the following. Write your answer in the blank space provided
below.

__________ 1. A continuing rise in the general price level.

__________ 2. Insurance that offers both death benefit and investment features.
__________ 3. Ability to be converted into cash, the higher the liquidity the better.
__________ 4. Risks of one country's foreign policy influencing or upsetting domestic,
political, and social policy in another country or region.
__________ 5. Agreement to raise prices in the future depending on certain circumstances.

Activity 5: Reflective Assessments

Direction: On a separate sheet of paper, answer the following questions: (5 points each)
1. What concepts or skills did you learn well?

2. What concepts or skills was difficult to understand?

3. What activities did you enjoy the most?
4. What activity was hard to execute?

5. Did you ask help from your teacher? (Yes or No). If Yes, did you immediately receive
the needed assistance? Was the given assistance helpful for you to understand better the
lessons?

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