Bank accounts

Factors to be considered
• Minimum balance required- penalties when the balance goes below the minimum amount.
• Interest rate – interest rates are tiered means it changes depending on the balance. The bigger the balance, the higher the interest rate
• Limitations as to withdrawals
• The bank’s reputation
• Insurance
 Bank Accounts
• Forms
savings account, time deposit, special deposit or premium savings
account, checking account
 Current Account
• a type of bank account from which withdrawals are
made by issuing checks.
• Deposits are made with the use of deposits slips
• Often called a checking account
• It is maintained to separate cash intended for normal
operations and to control disbursements
• used as a clearing account to which all checks
received are deposited
• After cleared, the depositor transfer the different
amounts to other bank account such as savings and
time deposits
• It does not earn interest
•
Savings Account
Type of bank account wherein deposits thereto and withdrawals therefrom can be made any time
• Deposits and withdrawals are made with the use of deposit and withdrawal slips, respectively
• All transactions are reflected on the passbook provided by the bank
• Interest rate earning ranging from 2% to 3% less 20% withholding tax
 Computation of annual interest rate

Annual interest rate of 2% net of 20% tax

2% x (1-20%)= 1.6%
or .02 x.80=0.016

Monthly interest rate net of 20% tax=

1.6%/12= .13333%
or .016/12=.00133

How much is the compounded growth after a

year? Savings of P2,000
 seatwork 1 whole paper
• using the table given for annual savings
based on different earning rate determine
how much should be the compounded
growth in a year?
Compounded
Annual Savings Earning Rate growth
250,000.00 8%

400,000.00 10%

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 Time deposit
• Is a loan to a bank for a fixed term.
• Evidenced by certificate of time deposits (CTDs)
• Minimum term in the Philippines is one month so
that depositor may roll over (to place in a new
investment of the same kind) his account monthly
• No penalty impose for Pre-terminate of the time-
deposit. Just forgo the corresponding interest
income
• Interest rate range from 6%-7% less 20% tax

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 Example
• A time deposit of P10,000 is rolled over every month at the rate of 7% with the 20% withholding tax.

monthly rate must be 1/12 of 5.6% ( or 7% x 80%) = .4667%

at the end of the year P10,000 shall have a Future Value (FV) of P10,575

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• The amount arrived at as follows:

P10,000 x 1.00466712 = P 10,575.00

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 Quiz - 1/2 paper
• If a family can save P10,000 every year for five years and continue to roll over the
amount at the rate of 8% without withdrawing the interest. Compute the total
amount /future value at the end of the fifth year.

04/02/19
• Future value (FV) of annual savings of P10,000
for 5 years at 8%
=10,000 x FV of an annuity of 1 for 5 periods at
8%
= P10,000 x 6.335929*
= P63,359
• 1.000000 x 1.08 = 1.08000*
• 1.080000 x 1.08= 1.166400
• 1.166400 x 1.08 = 1.259712
• 1.259712 x 1.08 = 1.360489
• 1.360489 x 1.08 = 1.469328

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 Quiz- 1 whole paper
• Using the table given for annual savings based
on different earnings rate and years of
accumulation, determine how much should be
the annual earnings under each of the
following:
Annual saving earning rates years to accumulate

443,815 4% 5 years
120,051 6% 15 years
200,219 8% 10 years
 Securities
• are written evidences of ownership , interest
or participation in an enterprise, or written
evidences of indebtedness of a person or
enterprise

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 Classification of Securities markets

A. Based on Maturity of securities

Money market- this refers to the trading of short-
term securities
e.g. treasury bills and commercial papers
*these are considered as near-cash securities,
maturing within three months
Capital market- this refers to the trading of long-
term securities
e.g. bonds and shares of capital stock
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B. Based on who is the seller
Primary market- the seller is the issuing entity.
*proceeds from sale of securities go to the issuing
corporation

Secondary market- the seller is a party other than the

issuing entity.
* the proceeds from sale of securities do not go to the
issuing corporation.
e.g sales of bonds and shares of stock by one security
holder to another so that the proceeds go to the
former and not anymore to the corporation that
issued the securities.
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 Credit Securities
• Are evidences of indebtedness issued by an entity as a vehicle in borrowing from the public.
e.g. Commercial Paper, Commercial Bonds and Government Securities- Treasury bills and
Treasury bonds
 Factors to consider in investing in credit securities

• Interest rate
• Date of maturity
• Value of the security
• yield on the security
• Credit rating of the issuing party
• Credit rating of the trustee (if any)
• Credit rating of the underwriter (if any)
 Bonds
• Bonds is a certificate of indebtedness with fixed interest rate and maturity date
• A formal and unconditional promise
• Made under seal, to pay a specified sum of money at a determinable future date
• Make periodic interest payments at a stated rate until the principal amount is paid
 Indenture or Bond Indenture
• The written agreement on bond issues
between the issuing party and the bondholder
 Classifications of Bonds
• As to the issuing party
- Government bonds, commercial bonds
• As to security
- Mortgage bonds, equipment trust bonds, collateral
trust bonds , Debenture bonds
• As to maturity of Principal
Straight bonds, serial bonds, convertible bonds,
callable bonds, non-callable bonds
• As to transferability
- Bearer bonds, coupon bonds, Registered bonds
 Zero Coupon bonds & Junk bonds
Zero coupon bonds are those on which there is no periodic payment of interest.

Junk bonds are high yielding bonds issued by companies with very low credit rating so that there is higher risk from default in the payment
of interest and principal.
 Yield and Bond Value
• Yield on bonds refers to the effective rate at which an investor is earning on his investment.
• Used to refer to the increase in value of an investment
• Bond value refers to the price at which investors would be willing to buy so that they can realize
their desired yield on or rate of return from the investment.
 Bond Quotations: Premium & discounts
• Bonds are quoted in terms of percentages of par or face value
• If bonds with par value of P50,000 were quoted at 98, it means they are selling at 98% of par
value or for P49,000. If quotation were 105, they are selling for P52,500 ( or 105 0f P50,000
 Effective rate
• Computed by dividing the annual interest by purchase cost
Example : an investor buys 8% P100,000 bonds for P95,000. The effective rate

effective rate= P8,000/P95,000=8.42%

 Seatwork
• How much must be the discount price and effective rate on 8% , 5-year P200,000 bonds
issued at 96?
• How much must be the discount price and current yield on 10%, 5-year P150,000 bonds
issued at 95?
 Computations for Yield on Long-
Term Bond Investments
• Yield on bonds may be computed by interpolation
or approximate.

Approximate yield = interest per annum + [(Principal-Value)/]

(Principal + Value)/2

Or Approximate Yield = I + [(P-V)/n]

( P + V)/2
• The bond yield based on price quotation of
96.21 of P50,000 , interest rate of 9% on 5-
year is estimated as follows:

Approximate Yield = I + [(P-V)/n]

( P + V)/2
Approximate Yield = 4,500 +[( 50,000- 48,105)/5]
(50,000 + 48,105)/2
= (4,500 + 3790) / 98,105/2
= 4,879/ 49,052
= 9.94% or 10%
 Seatwork
1. Mayon Corp. is issuing 10-year, 7 %
P100,000 bonds. Assuming that the bonds
are bought at 103, what should be the
approximate yield thereon?
2. Nomay Corp. Is issuing 5-year , 6%
P100,000 bonds . Assuming that the
bonds are bought at 96.35, what should
be the yield to maturity?
 Treasury Bills
• Government securities that mature in less than a year
• Offered in three terms namely, 91, 182 and 364 days to banks and eligible dealers
• Issued at discount and are redeemed at face value
• So that the increment in value is the yield or interest earned by the investor
 Computation for Purchase price and
discount ( by Bureau of Treasury)
• Purchase price (PP) = Face Value x 360
360 + (Rate x Term)
• Discount = Face Value- Purchase price
 Seatwork
• Treasury bills of P200,000 for 91 days are bought by a bank at the average rate of 13.5%. On the same day, they are
sold to an investor at 12.75%. Compute the purchase prices and discounts to both the dealers and the investors.
• Compute for purchase price and discount to an eligible dealer who purchased 182 days P1,000,000 treasury bills at
12%
Bond value= Present value of + Present value
annual interest redemption
price

at maturity date
 Illustrative Problem
• GHE Corp. Is issuing 2,000 of 5-year , 9% P50,000
bonds as of January 1, 2017. How much is the
bond value if the investor desires a yield of (a) 9%,
(b) 10% and (c) 8.37%
• Future cash flows from an investment in one bond
are the following:
Annual interest for 5 years (9% x P50,000)—P4,500
Face value(redemption price@ maturity date)—50,000
 Computation for bond value
• At 9% yield:
P 4,500 x 3.889651 = P 17,503
50,000 x 0.649931 32,497
________
P50,000
 Introduction
• in more advanced countries stock invest is an
indispensable source of income for both the
private sector and the government.
Investment in Stocks
 Stock Investment Defined
• refers to acquisition of shares of stocks of
other corporations to realize profit upon their
sale and for periodic income (in the form of
dividends).
 Classification of Stocks
• Rights of stockholders
• Nature of business the corporation is engaged
in
• Risk and potential for earnings
• Market capitalization
• Marketability
• Citizenship of investors
 Stocks classified based on Rights of
Stockholders

• Common stock.
- this represent the basic ownership in a
corporation
- it carries with it the right to vote on corporate
matters
- shares in profits after providing for the shares
of preferred stock and absorbs corporate losses
• Preferred stock.
- This refers to that portion of owners' equity
that enjoys preferences over common stock
- These be in the distribution of earnings and/
or distribution of assests in case of liquidation
 Stocks classified based on the Nature of
Business
• stock are classified as banks and financial
services
• industrial and commercial
-communication,power and energy,
transportation services, holding firms, hotel,
recreation and other services
• mining and oil
 Stocks classified based on Risk and
Earnings Potential
• Blue Chips- these belong to large companies
which have a long record of earnings and
dividend payments
• known as value stocks
• Low-risk and dependable
• eg. San Miguel Corp., PLDT, Meralco, Ayala Corp
• Investment in this kind of stocks is called value
investment
• Growth Stocks- these belong to corporations
with growth rate faster than that of the
general economy.
• the growth may be in terms of revenue, net
income and productive assets
• eg. Globe Telecom with its fast increasing
subscribers and consequently, revenue
 Cyclical Stocks
• Their earnings and prices move with the
changes in the national economy.
• eg. are those of corporations engaged in high-
cost real estate (Ayala Land Corp) and in
recreation and amusements
 Defensive Stocks
• Their earnings are not affected so much by
changes in the economy.
• They belong to corporations engaged in foods
and public utilities
• eg. San Miguel Corp. Jollibee Corp.,MERALCO,
PLDT and Globe Telecom
 Speculative Stocks
• These belong to companies that are not yet
operating profitably but are expected to do so
in the future.
 Stocks Classified Based on Market
Capitalization
• refers to the total market value of shares of
stocks listed in the stock exchange.
• stocks are classified as first liners, second
liners and third liners
• Market Capitalization- refers to the market
value of the total number of shares
outstanding of a corporation
 Stocks classified based on their
Marketability
• in relation to marketability of stocks, they are
classified as listed or unlisted depending on
whether they are listed in the stock exchange
or not.
• Investor prefers to buy shares that he can
easily dispose that investor buys publicly listed
stocks or those listed in the stock exchange
 Stocks classifies Based on Citizenship of
Investors
• classified into Class A and Class B
• Class A may be bought by Filipinos only
• Foreign investors are allowed to buy Class B
only due to the prohibition for foreigners to
own more than 40% equity in the Philippines
corporation
 Parties involved in Stock Investment

• Stock Market
• stock Broker
• Stock clearing office
• stock transfer office
• the investor
 Stock Values
• Stocks have par value, book value, net asset
value and market value per share.

• Book Value – is the value of a stock based on

the value of stockholders’ equity per books of
accounts.
stockholders’ equity per books = assets at
book value- liabilities
 Net asset value

• of a stock is based on the current value of assets

minus liabilities
Net asset value = asset at current value- Liabilities
Per share no. of outstanding shares of
common stock
 Market Value
• Market value of a stock is its current market
price
• it is the closing price in the day-to-day trading
in the stock exchange

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 Price Volatility
The volatility of prices refers to the speed at
which prices go up and down.
The more volatile a market is, the bigger are the
potential profits and losses on the short -term
 Why Prices Fluctuate
• Affected by supply and demand
• The length of period given to stock traders to
pay their accounts.
 Oversold or Overbought
• Oversold- when the price of a stock has gone
down so low.
• so it is time to buy
• Overbought- the price has gone up or has
reached an all-time high.
• advisable to sell the particular stock or to
refrain from buying

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 Price Band
• Refers to the range within which the price of a
stock may change in one day’s trading.
• Set at 60% to 150% of the previous day’s
closing price.
• Price may increase by more than 50% and may
decline by not more than 40% of the previous
day’s market price
 Bullish and Bearish Market
• Bullish when prices increasingly move
upwards.
• Bearish market, prices are dropping
continously
 Bases in Investing in Stocks
• Investing based on technical analysis. Based
on price trends and the attitude of investors
toward a specific stock
• Keep track of price changes
• Use graphs
• Buys at the “lows” and sells at the “highs”
• Investing based on Fundamental Analysis.
- Called value investing because it is based on
the value of the underlying corporation which
is measured in terms of book value, net asset
value, earnings per share and price- earnings
per ratio.