WEEK 4
WRITTEN WORK: Copy and answer
Fill in each blank with correct word or words to complete each statement.
1. General Annuity is defined as an annuity where the length of the payment interval is not the
same as the length of the interest compounding period while General Ordinary Annuity is a
general annuity in which the periodic payment is made at the end of the payment interval.
2. A cash flow is a term that refers to payments received (cash inflows ) or payments or deposits
made (cash outflows) . Cash inflows can be represented by positive numbers and cash outflows
can be represented by negative numbers. It is also the amount of cash and cash-equivalents
being transferred into and out of the business.
3. The fair market value or economic value of a cash flow (payment stream) on a particular date
refers to a single amount that is equivalent to the value of the payments stream at that date. This
particular date is called the focal date.
PERFORMANCE TASK:
Decide on the following problems by determining the fair market value. Show your solutions in a
sheet of paper together with your decision on the problem.
1. Investment in Sunrise Company is ₱ 100,000 at the end of 5 years plus ₱ 24,000 annually for 4
years afterwards. Investment in XYZ company offers ₱ 50,000 semi-annually ₱ 15,000 every 6
months after 6 years. Assume that the money is worth 9% compounded annually, which
investment is preferable?
2. A motorcycle is for sale ₱ 60,500 cash or on installment terms ₱ 3,000 per month for 2 years
at 12% compounded annually. If you were the buyer, what would you prefer, cash or installment?
WEEK 5
Students will answer the following:
WRITTEN WORK:
A. Complete the following statements by writing the correct word or words.
1. When a company goes to sell a stock, they decide to sell a certain amount of shares of
ownership in their company that they will give up in exchange for cash from investors.
2. A stock is a security in that company that can also be referred to as equity or a share.
3. Those who own common stock in a company typically have voting rights in shareholder's
meetings and may even receive dividends, while preferred stock owners do receive dividends but
don't always receive voting rights.
4. Bond are fixed-income investments, which operate off of a fixed interest rate and a fixed
amount of time wherein the company, government, or other will repay the money plus the interest.
5. A Stock represents a collection of shares in a company which is entitled to receive a fixed
amount of dividend at the end of relevant financial year, whereas Bond is associated with debt
raised by the company from outsiders which carry a fixed ratio of return each year and can be
earned as they are generally for a fixed period of time.
PERFORMANCE TASK:
A. This is an activity that will test your decision prowess.
Scenario 1. Your grandparents gave you ₱ 175,000.00 on your 16th birthday. You were instructed
to invest the money so that the earnings can be used to pay for your tuition fee in college. Having
heard about the risks and rewards of the stock market from your parents, you become interested
in buying stocks in a particular company.
Below are the options given to you by your parents:
Option1: Company ABC’s selling stock is ₱ 1,500.00 per share that will have a dividend of ₱
200.00 per year. The stock can be sold after two years at ₱ 2,000.00 and the market requires a
rate of return of 15%.
Option2: Company XYZ’s selling stock is ₱ 1,000.00 per share that will have a dividend of ₱
180.00 per year. The stock can be sold after two years at ₱ 2,000.00 and the market requires a
rate of return of 7%.
In which company will you invest your money? Why?
I will invest in company XYZ despite the fact that it only has a 7% return since risk and the
necessary rate of return are intimately related by the simple fact that as risk increases, so does
the required rate of return. When the risk of an investment increases, the required rate of return
also increases. Therefore, a lower-risk investment has a lower profit potential. A higher-risk
investment has a higher profit potential but also a higher loss potential. Since company ABC
gives a higher rate of return, I will choose the less risky investment over the more risky one. The
greater the risk associated with an investment, the greater the expected return. If I choose the
15% rate of return, I expect a better return, but I'm placing myself at greater risk, which could
result in a larger possible loss of money for me. Stocks are among the most risky investments
because there is no certainty that a company will remain viable. Even large corporations can fall
suddenly, leaving investors with nothing.
