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14.

00%
9.00%
4.00%
1

Scenario 1:

10

11

12

18

24

36

48

60

P100M 36 mos Term Loan @ 11.00%


P100M 36 mos Time Deposit @ 4.50%

Asset
Loan Rate

Liability

Treasury

Bank

11.00%

11.00%

Depo Rate

4.50%

TP Liability

8.50%

TP Asset

8.50%

NRFF

2.50%

4.50%
8.50%
8.50%

4.00%

0.00%

6.50%

10.00%
8.00%
6.00%
4.00%
1

Scenario 2:

10

11

12

P100M 36 mos Term Loan @ 11.00%


P100M 12 mos Time Deposit @ 4.50%

18

24

36

48

60

Asset
Loan Rate

Liability

Treasury

11.00%

11.00%

Depo Rate

4.50%

TP Liability

7.00%

TP Asset

8.50%

NRFF

2.50%

Bank

4.50%
7.00%
8.50%

2.50%

1.50%

6.50%

Steps in the Investment Management Process

Setting investment objectives


Begins with thorough analysis of the objectives of the investor.
Accumulate funds to purchase a home or other major acquisitions in the future
To accumulate funds to pay for college tuition for children
To have sufficient funds to be able to retire an specified age
Establishing an investment policy
Begins with the asset allocation decision.
Common Stocks
Bonds/Securities
Cash
Real Estate
Selecting an investment strategy:
Active portfolio strategy:
Uses available information and forecasting techniques to seek a better
performance
Factors influencing the performance of an asset class is important.
Forecasts of future interest rates and sector spreads.
Forecast of local interest rates and exchange rates
Passive portfolio strategy:
Relies on diversification to match the performance of some market index.
Assumes that the market place will reflect all available information in the price
paid for the securities.
Selecting the specific assets
The investor attempts to construct an efficient portfolio,
one that provides maximum expected return for a given level of risk, or
the lowest risk for a given expected return.
Measuring and evaluating investment performance
Involves measuring the performance relative to some benchmark

Stocks
Stock Market

Role of Stock Exchanges:


Raising capital for businesses
Mobilizing savings for investment
Facilitating company growth
Redistribution of wealth
Creating investment opportunities for small investors
Government capital-raising for development projects
Barometer of the economy

Categories of Stock Market Transactions


INITIAL PUBLIC OFFERING (IPO)
the first sale of stock by a private company to the public.
often issued by smaller, younger companies for expansion.
can also be done by large privately-owned companies looking to become publicly
traded.
can be a risky investment.
ADDITIONAL SHARES SOLD BY ESTABLISHED, PUBLICLY OWNED COMPANIES: THE PRIMARY MARKET
raising of new common stock
OUTSTANDING SHARES OF ESTABLISHED, PUBLICLY OWNED COMPANIES: THE SECONDARY MARKET
when the owner of shares of stock of a listed company sells his shares

Advantages of Going Public:


Diversification
Liquidity
Facilitates raising new cash
Establishes value for the firm

Disadvantages of Going Public:


Cost of reporting
Disclosure
Self-dealings
Inactive market/low price
Control

STOCKS
Stocks are shares of ownership in a corporation.
Stockholders or shareholders are part-owner of the company.

TYPES OF STOCKS
Common Stocks
Usually purchased for participation in the profits and control of ownership and
management of the company.
Holders have voting rights.
Preferred Stocks
Name derived from preference given to the holders of these stocks over holders
of common stocks.
Holders are entitled to receive dividends before any dividends are paid to the
holders of common stocks.
Usually have a specified limited rate of return or dividend.
Investing Procedures
Choose a stockbroker.
Open an account with the stockbroker.
A trader or agent will be assigned to assist in either buying or selling any listed security.
Discuss with the trader what stocks to buy or sell.
Give the order to your broker/trader, and then get the acknowledgement receipt.
Securities fees and taxes on purchases and sales of stocks:
FEES/TAXES
a. Brokerage Commission
(maximum of 1.5% of
transaction cost + 12% VAT)
b. SCCP Fee of 0.0001 x
value of transaction
c. Transfer Fee of Php 100.00
+ 12% VAT
d. Cancellation Fee of
Php 20.00 + 12% VAT
e. Stock Transaction Tax
( of 1% value of transaction
in lieu of capital gains tax)

SELLER

BUYER

X
X

Illustration:
Buying Transaction:
Mr. X buys 5,000 shares of stock whose market price is P25.00. The amount that he needs is
about P125,000.00 plus charges. His required cash outflow will be as follows:
Market price/share
P 25.00
Number of shares
x 5,000
-----------------P125,000.00
Broker's Commission
(1.5% + 12% VAT)
+ 2,100.00
SCCP Fee
+
12.50
Transfer Fee + 12% VAT
+
112.00
Total Cash Outlay
P127,224.50
Selling Transaction:
Mr. Y sells 50,000 shares of stock whose market price is P5.00. The proceeds of the sale is about
P250,000.00 less charges. His cash inflow will be as follows:
Market price/share
P
5.00
Number of shares
x 50,000
P250,000.00
Brokers Commission (1.5% + 12% VAT)
SCCP Fee
Stock Transaction Tax
Cancellation Fee + 12% VAT
Net Cash Receivable

- 4,200.00
25.00
- 1,250.00
22.40
P244,502.60

Exercises

Buying Stocks:
Compute for the total Cash-out assuming you buy:
a. 10,000 shares at P20.00 price per share
b. 5,000 shares at P100.00 price per share
Selling Stocks:
Compute for the total cash inflow assuming you sell:
a. 100,000 shares at P10.00 price per share.
b. 10,000 shares at P5.00 price per share.
Answers:

Buying:
203,492.00
508.562.00
Selling:
978,077.60
48,882.60

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