Senior High School

Business Finance
Quarter 4 – Week 3: The definition,
purpose, kinds, advantages, and
disadvantages and the risks of
investment
Lesson 1 – The Different Types of Investments.

Writer:
ROSARIO D. LOPEZ
MT-I Becuran High School
Editors:
JANE P. VALENCIA, EdD – Math/ABM Supervisor
CHAIRMAN
ELSA A. LAQUINDANUM – MT- I
CHRISTINA P. SANTOS – MT- I
 What I Need to Know

This module was designed and written with you in mind. It is here to help you master the
Different Types of Investments. The scope of this module permits it to be used in many
different learning situations. The language used recognizes the diverse vocabulary level of
students. The lessons are arranged to follow the standard sequence of the course. But the
order in which you read them can be changed to correspond with the textbook you are now
using.

After going through this module, you are expected to:

1. Compare and contrast the different types of investments.
2. Differentiate investment according to its type and features.
3. Enumerate advantages and disadvantages of the different types of investments.
 What I Know

True or False: Write True if the statement is correct and False if it is wrong.

1. The decision to establish an investment plan is an important

first step to accomplishing your financial goals.
2. There are two types of stocks – common stocks and preferred
stocks.
3. A short-term investment objective is defined as one that will be
be accomplished within a period of two to five years.
4. An emergency fund is a certain amount of money that can be
obtained quickly in case of immediate need.
5. Stock prices fluctuate due to competition and movements in
market prices.
6. Liquidity is the ease with which an asset can be converted to
cash without substantial loss in peso value.
7. Preferred stock represents the most basic form of corporate
ownership.
8. A line of credit is a short-term loan that is approved before the
money is actually needed.
9. One of the major assumptions in investment is that investors
base their decisions strictly on expected return and risk factors.
10. Bondholders generally receive interest payments every six
months.
 Lesson The Different Types of
1 Investments

An investment is any type of asset that is acquired by an investor with the

intent to utilize it to generate income and eventually accumulate wealth. Finance
professionals view investment as a monetary asset, like a bond, a stock or any type
of financial instrument which is purchased and in due time will be sold, hopefully at a
higher price.

For instance, if the stocks were bought at P200 per share and after one year the
investor was able to sell them for P300 per share, then the investor would have earned
P100 per share. If there is a total of 1,000 shares, then the profit would be P100,000.

What’s In

Stretch Your Financially Inclined Mind

Arrange the jumbled words below to find the terms being described by the clues provided
below. These finance terms and concepts will be useful for you as you study the lessons
for this module.
1. RUNSTER =
2. DAMAGEN NUDFS =
3. REVFITINOSAIDIC =
4. REDHASHEROL =
5. DILEY =
Here are your clues:
1. It is the amount of money earned from investments.
2. Are companies or trust funds that pool money from various investors through a
fund manager, who in turn, invests that collected money in stocks, bonds, or a
combination of various investments. Managed funds
3. This means that investors who don’t have enough money can have the
opportunity to buy different types of investments through pooling of funds of
other investors.
4. Someone who invest in the stock of a business.
5. The return that you would expect if you hold the bond for a year and is expressed
in percentage.

Notes to the Teacher

The teacher must take into considerations the essential
skills needed in the development of this competency
including the background knowledge which may reinforce
learning. This module will help the learners link the gap of
learning to achieve mastery of the lesson.
 What’s New

FINDING WORDS:
Let’s raise your level of investment skills. Draw a line connecting the letters to form
words suggested in the box.

1. Preferred
2. Securities
3. Investments
4. Bonds
5. Funds

M F R R Q S T S U D M A F R
O I I E U R Y N E E O L B U
C P M R E S F R O N T K O N
E R B V W O R U C P E B N D
K A C U P E T L N O W G D B
P P U X F S U M S D D U S I
I N V E S T M E N T S A N F
L M R L M A E O A P E L S K
M P O A S E C U R I T I E S
 What is It
Different Types of Investments and their Features:
Types of Investments Features
1. Investing in a Bank Earns minimal interest, easily withdrawable, least
1.1 Savings account risky, insured with PDIC up to P500,000.
1.2 Time deposit Higher interest, withdrawal after the fixed time, i.e.
90days, one year, etc.,
2. Investment in Bonds Like an IOU (I owe you) issued by a government or
company with fixed interest rate-called coupon.
3. Investment in Shares Like buying a small part of a company, earnings
of Stocks through dividends and capital gains as price increases.
4. Managed funds An investment company, which pools the money of
various investors and invest that money in bonds,
stocks or a combination of various investments.
5. Investment in Property Can either be real property (real estate) or tangible
personal property (gold, precious metals, artworks,etc.)

Advantages and Disadvantages of the Different Types of Investments:

Types of Investments Advantages Disadvantages
1. Investing in a Security-insured by PDIC Lower returns – 1% or less for
Bank Liquidity for savings account savings, 2-3% time deposits
Liquidity for time deposits
2. Investment in Safest - with fixed interest With fixed term cannot be
Bonds Lending money to a company withdrawn before maturity or
for expansion of business, at a lower amount.
which contributes to
economic growth
3. Investment in Share in profits in the form of Dividends dependent on
Shares of dividends board declaration
Stocks Capital gains due to increase During liquidation, creditors
in market prices have first claim on assets
 4. Managed funds Diversification, ease of entry, Fees, performance not
convenience, fund guaranteed, lack of control,
management and low taxation
investment amount.
5. Investment in Price appreciation for real Long term process for profits
Property property. Safest investment to be realized.

What’s More

Types of Investments: As depicted by the image, choose which of the following is your
investment option and explain your answer by highlighting its features and
advantages:

What I Have Learned

1. An investment is any vehicle into which funds can be placed with the
expectation that they will generate positive income and/or increase in value.
2. The following are types of investments: investing in banks, bonds, shares of
stocks, managed funds and investment in property.
 3. Each type of investment has its own unique features , advantages and
disadvantages in terms of security, returns, terms, liquidity , diversification,
convenience, fees and taxation.
4. There are a lot of types of investment to choose from. Some are perfect for
beginners, while others require more experience. Each type of investment offers
a different level of risk and reward.
5. Investors should consider each type of investment before determining an asset
allocation that aligns with their goals.

What I Can Do

Case Study
Your mother, who is an OFW, is coming home in six months. The last time you
spoke to her via online video call, she asked you to suggest three small businesses to
invest in. She said that she has allotted P500,000 as capital that would be divided
between the three businesses that you will recommend. You scribbled some possible
businesses and came up with the following options:
Possible Business Estimated Initial Capitalization
1. Barbershop P 180,000
2. Beauty parlor 140,000
3. Buy and sell of ready-to-wear clothes 75,000
4. Carinderia 90,000
5. General merchandise store 150,000
6. Milkshake business 75,000
7. Pizza stand franchise 120,000
8. Siomai stand franchise 200,000
9. Small bakery 200,000
10. Small grocery store 100,000

Draft an e-mail for your mother containing the following:

1. The top three recommended businesses that you would recommend to your mother.
2. Give at least three reasons as to why you chose the business you have
recommended, which include your opinion on which you think would be most
profitable, feel free to quantify your opinion if you wish but this is not necessary.
3. Give at least two disadvantages for each business recommended.

Assessment

Multiple Choice. Encircle your answer.

1. What is a bond?
A. It is a security that represents partial ownership in a business.
B. It is a security that represents the debt of a government or a business that
promises to pay a fixed amount.
C. It is a security that represents the equity of a government or a business
that promises to pay a fixed interest.
D. None of the above.
2. Which is TRUE of money market mutual funds?
A. Enable individuals and small businesses to invest indirectly in money-
market instruments.
B. Are available only to high net-worth individual
C. Are involved in acquiring and placing mortgages
D. Are also known as finance companies
2. A business owned by two or more people and operated for profit.
A. Cooperative C. Partnership
B. Corporation D. Sole Proprietorship
3. An entity created by law owned by shareholders. Overall objective of a
shareholder should be wealth maximization
A. Cooperative C. Partnership
B. Corporation D. Sole Proprietorship
5. Rational investors will seek efficient portfolios because these portfolios are
optimal based on:
A. Expected return C. Risk
B. Expected return and risk D. Transaction cost
6. Most investors are assumed .
 A. Risk averse C. Risk moderators
B. Risk neutral D. Risk seekers
7. Based on recent history, an investor would probably have a lower risk level with
portfolio consisting of .
A. All bonds C. Impossible to tell
B. All stocks D. Some stocks and some bonds
8. Who will decide on the declaration of dividends in a corporation?
A. The board of directors of the firm
B. The president of the company
C. The shareholders of the corporation
D. The stock exchange on which the stock is listed
9. What is the difference between shares and bonds?
A. Bonds represent ownership whereas shares do not.
B. Shares and bonds both represent equity.
C. Shares and bonds both represent liabilities.
D. Shares represent ownership whereas bonds do not.
10. How should one think of stocks?
A. One should not think of stocks as being synonymous with a good business
B. One should think of stocks as pieces of businesses.
C. One should think of stocks as chips in the casino
D. Both A and B.
 Additional Activities

Fast Learning Exercise:

Research Work:
Direction/Required: By group or individual
Font: 14, Times New Roman; Double Space, Minimum of 5 Pages
Format:
1. Introduction
II. Body
III. Summary
IV. References: If thru internet, please indicate the web site
Ex. https://en.wikipedia.org/wiki/Means _of_production
Book references:
Ex. Author, Title of the book, place published, year
Research topic:
Research on what is the most invested field from the year 2017 to 2018.
(Example: Real estate, stocks)