12 SENIOR HIGH SCHOOL

BUSINESS FINANCE
Quarter 4 – Module 1
The Different Types of Investments

NegOr_Q4_Business Finance12_Module 1_v2

 Business Finance – Grade 12
Alternative Delivery Mode
Quarter 4 – Module 1: The Different Types of Investments
Second Edition, 2021

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NegOr_Q4_Business Finance12_Module 1_v2

Introductory Message

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Thank you.

NegOr_Q4_Business Finance12_Module 1_v2 i

 I

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at our own pace and time. You will be enabled to process
the contents of the learning resource while being an active learner.

• The module is intended for you to compare and contrast the different types of
investments and to classify investments according to its type, features, and advantages and
disadvantages.

1 NegOr_Q4_Business Finance12_Module 1_v2

 I

Task 1
Multiple Choice.
Direction: Read and answer the questions below. Write the letter of the correct answer in
your notebook or in a clean sheet of paper.

1. Which is considered an open-end professionally managed investment fund that pools

money from many investors particularly to purchase securities?
A. UITF C. Bonds
B. Mutual Fund D. Bank Deposits
2. The following are examples of Alternatives to Fixed Income and Equities.
A. Mutual Funds & UITF
B. Stocks & Mutual funds
C. Bank Deposits & Stocks
D. Bank Deposits & Cryptocurrencies
3. Which among the following is an advantage of the fixed income and equities called
stocks?
A. Riskiest of all assets that has a possibility of losing more than
50% of their money in one day.
B. Lower interest income
C. No guaranteed returns
D. Unlimited upside
4. Real estate assets may include the following except for __________________
A. Land C. Car
B. House D. Lot
5. Which is true about currencies?
A. Generally Accepted form of money.
B. Includes coins, paper notes.
C. May include USD, PHP, and other.
D. All of the above
6. Which is not true about investments?
A. It can make your money grow.
B. It turns money to real property.
C. Investments generate positive or negative income.
D. Investments always give you good returns.

2 NegOr_Q4_Business Finance12_Module 1_v2

 7. If these types of investment are held until maturity and pre-terminated, investor can
gain or lose depending in the prevailing interest rates at the time of termination.
A. Bonds C. Stocks
B. Bank Deposits D. Mutual Funds
8. These are financial instruments managed by banks which will help you make the most
of your money.
A. Cryptocurrencies C. Savings account deposit
B. UITF and Mutual funds D. Bank deposits
9. This includes savings account, current accounts, and others that took place in banks.
A. Bank Deposits C. Bonds
B. Creditors D. UITF
10. Which among these statements is not true about UITF and Mutual Fund.
A. UITF aims to maximize net gains.
B. UITF is accessed through banks.
C. Mutual Fund is a pool of funds.
D. Both can receive dividends

True or False.

Direction: Write True if the statement is True and write false if the statement is False.

1. In risk return trade-off, when risk goes up the return goes down.
2. The biggest difference between saving and investing is the amount of interest you
earn from your money.
3. Investment does not come with risk and/or profit.
4. Savings can change its value over time if placed in a bank time deposit or equity
investment.
5. Investments can make people suffer it not guided and done properly.

3 NegOr_Q4_Business Finance12_Module 1_v2

 ’s In

Task 2

Direction: In your notebook, define the following:

1. Dividends - _________________________________________________________
2. Voting rights - _________________________________________________________
3. Inflation - _________________________________________________________
4. Liquidity - _________________________________________________________
5. Insurance Premium - ___________________________________________________

’s New

Task 3

Direction: Read the short scenario below and answer the question that follows. Write your
answer in your notebook or in a clean sheet of paper.

Scenario:

Angel is looking forward to invest her savings as a part time tutor. She planned to
deposit her savings in a bank for it has a higher security and offers 3% interest per annum. On
the other hand, her friend Liza introduced her about ABC Food Corporation that is selling
some of their stocks, giving high and promising returns but with higher risk due to poor
security and unstable market price. According to Liza, shares of stocks are sold in a lower
price due to the pandemic and once everything will be back to normal, the price of the stocks
will rise again.

If you are Angel, are you going to deposit your money in the bank or you are going to
purchase shares of stocks from ABC Food Corporation? Why?

4 NegOr_Q4_Business Finance12_Module 1_v2

 is It

What is Investment?

To invest is to allocate money in the expectation of some benefit in the future. In

finance, the benefit from an investment is called a return. The return may consist of a gain or
loss realized from the sale of a property or an investment, unrealized capital appreciation (or
depreciation), or investment incomes such as dividend, interest, rental income or a
combination of capital gain and income. The return may also include currency exchange
rates.1

Investment is an asset or item acquired with the goal of generating income of

2
appreciation. Appreciation refers to an increase in the value of an asset over time.

There are types of investments that investors are giving focus into. If you are planning
to go into an investment you need to consider the risks that you might encounter during the
investing process. A very good tolerance of risk is very important, and this will surely help
you in facing what might happen in your investment in the future.

A financial investment is any asset or instrument purchased with the intention of

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selling the said asset for a price higher than the purchase price at some future point in time.
There are many ways in investing. Buying and selling products can be considered investing.
Buying the products in lower cost and selling them in a higher price.

Financial investments can be an equity investment, where you buy stocks from
companies and be part of the company’s ownership. This can also be in a form of loans that is
being purchased and will generate income in the future.

Investors look for different ways in investing their money to generate more income.
Even today, investors are not only using physical currencies in purchasing assets to gain
profits. Many are now using crypto currencies or digital assets in trading online. Investing

1
https://en.m.wikipedia.org/wiki/Investment
2
https://www.investopedia.com/terms/i/investment.asp
3
https://corporatefinanceinstitute.com/resources/knowledge/finance/investment-methods/

5 NegOr_Q4_Business Finance12_Module 1_v2

now is not only done in the physical market but is now also happening in the digital market.
But trading online or offline still comes with the goal of investing which is to gain profit.

In investing, you need to consider the risk return trade-off. Higher risk is associated
with greater probability of higher return and lower risk with a greater probability of smaller
return. This trade off which an investor faces between risk and return while considering
investment decisions is called the risk return trade off.4

What are the different types of investments?

Investments can be any form and there are many of its types. Stocks, bonds,

investment funds, bank products, options, annuities, retirement, saving for education,

alternative and complex products, initial coin offerings and cryptocurrencies, commodity

futures, security futures and insurances are some of the various types of investments. These

types of investments do have their own advantages and disadvantages, and these can be used

for investors to compare each.

The types of investments are grouped into three: (1) fixed income and equities, (2)

alternatives to fixed income and equities, (3) other investment assets.

1. Fixed Income and Equities

Both equity and fixed income products

are financial instruments that can help

investors achieve their financial goals.

Equity investments generally consist of

stocks or stock funds, while fixed income

securities generally consist of corporate https://www.wallstreetmojo.com/equity-vs-fixed-income/

or government methods. Equity and fixed

income products have their respective risk-

4
https://economictimes.indiatimes.com/definition/risk-return-trade-off

6 NegOr_Q4_Business Finance12_Module 1_v2

 and-return profiles; investors will often choose an optimal mix of both asset classes to
5
achieve the desire risk-and-return combination for their portfolios.

The term fixed income refers to the interest payments that an investor receives are

based on the solvency of the borrower and current interest rates. This type of investment

offers higher interest based on how their maturities are.

Equity investment refers to buying shares in a particular company and, thereafter,

holding it in order to gain ownership interest that can be sold later to generate reasonable

returns depending on its investment objectives.

To know more about this type of investment, the table below will help you

distinguish each from the other.

Table 1. Advantages and Disadvantages of Fixed Income and Equities

Investment Type Advantages Disadvantages
Stocks (Equity) ❖ Unlimited upside ❖ No guaranteed returns
❖ Riskiest of all assets (can lose
even more than 50% of their
money in one day)
Bank Deposits ❖ Known income based on ❖ Lower interest income vs.
(Fixed Income) outstanding principal and bonds
current interest rate ❖ Settlement risk if the bank
❖ Shorter, if any, holding closes
period vs. bonds
Bonds (Fixed ❖ Known periodic payments for ❖ If not held until maturity and
Income) a certain period of time pre-terminated, investor can
❖ Can’t lose money if bond gain or lose depending on the
investment is held until prevailing interest rates at the
maturity time of pre-termination. If
interest rates are higher,
investor in bonds can lose in
the pre-termination

Other examples of fixed income investments are treasury bills, money market

instruments, and asset-backed securities.6

5
https://corporatefinanceinstitute.com/resources/knowledge/finance/equity-vs-fixed-income/
6
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/fixed-income-securities/

7 NegOr_Q4_Business Finance12_Module 1_v2

 Owner’s investment in his business, investment in shares of a public company,

acquisition of stake in another company through merger, venture capital investment in

startup, and private equity investment in mature companies are also examples of equity

investments.

2. Alternative to fixed income and equities

An alternative investment is a financial asset that does not fall into one of the
conventional equities, income, or cash categories. Alternative investments tend to be
somewhat not easily converted to cash or illiquid.

Table 2. Advantages and Disadvantages of Alternative Investments

Investment Type Advantages Disadvantages
❖
Advanced portfolio management ❖ High Expense Ratios
❖
Dividend reinvestment and sales charges
Mutual funds ❖
Risk reduction ❖ Management abuses
❖
Convenience ❖ Tax inefficiency
❖
Fair pricing7 ❖ Poor trade execution8
❖
Same as mutual funds. ❖ No shareholder rights
❖
Easier access because clients can for investors such as
Unit Investment open an account in any branch of dividends and voting
Trust Fund (UITF) the bank near them. rights.
❖ No entry and management fees.

Mutual funds give small investors to access to

professionally managed, diversified portfolios of
equities, bonds, and other securities, which would be
quite difficult to create with a small amount of capital.
Management fee is required in mutual funds. These are
the amount that clients pay to the professionals who
manage their mutual funds, normally a certain https://letspostthis.com/mutual-
funds/personal-finance/
percentage of portfolio value. Those who are investing

7
https://www.investopedia.com/ask/answers/10/mutual-funds-advantages-disadvantages.asp
8
https://www.investopedia.com/ask/answers/10/mutual-funds-advantages-disadvantages.asp

8 NegOr_Q4_Business Finance12_Module 1_v2

 in mutual funds also receive dividends from the company every year. Dividends are
income given to the shareholders from the company.

Unit Investment Trust Funds (UITF) is somehow the same as with mutual funds
aside from it is being controlled by banks. Clients or investors do have the option to
choose their choice of bank to where they like to open a trust fund account. Also, there is
no management fee in opening a UITF account. Unlike mutual funds, UITF holders do
not receive any dividends since it gives no shareholder rights to the account owner.

3. Other Investment Assets

Investment assets are tangible or intangible items obtained for producing additional
income or held for speculation in anticipation of a future increase in value. Here are
other investments assets that investors intended to take:

Table 3. The Advantages and Disadvantages of Other Investment Assets

Investment Type Advantages Disadvantages
❖ Largest market in the world ❖ Volatile and trades 24-
in terms of trading volume, hours a day
so much liquidity ❖ Generally, uses margin
❖ Unlike stocks, commodities, trading which allows
Currencies etc., currency asset itself is a clients to be more that their
medium of exchange which capital.
people can use to transact.
❖ Protection from inflation ❖ Can be used for illegal
❖ Self-governed and managed transactions
❖ Secure and private ❖ Data losses can cause
❖ Currency exchanges can be financial losses
done easily ❖ Decentralized but still
Cryptocurrencies / ❖ Decentralized operated by some
Digital Currencies ❖ Cost-effective mode of organization
transaction ❖ Some coins not available in
❖ A fast way to transfer funds9 other fiat currencies
❖ Adverse effects of mining
on the environment
❖ Susceptible to hacks
❖ No refund or cancellation
policy10
❖ Natural hedge against ❖ Same as currencies
inflation ❖ Impractical to invest
Commodities
❖ Negatively correlated with directly considering
equities and bonds storage, transportation and

9
https://www.geeksforgeeks.org/advantages-and-disadvantages-of-cryptocurrency-in-2020/
10
https://www.geeksforgeeks.org/advantages-and-disadvantages-of-cryptocurrency-in-2020/

9 NegOr_Q4_Business Finance12_Module 1_v2

 ❖ Hedge against geopolitical insurance costs involved
risks
❖ Generally, appreciates over ❖ Huge capital needed,
time because land get scarce financing can be difficult
❖ Have relatively low ❖ Maintenance of the property
correlations with other asset needed to preserve its value
classes ❖ Illiquid or difficult to sell
Real Estate
❖ Can be source of recurring
rental income
❖ May also be a hedge against
inflation because of
inflation-linked rent
escalation clauses
❖ Gives the insured ❖ Insurance premiums may be
individual/entity the costly
cash/capital to deal with ❖ On some traditional
foreseen adverse financial insurance plans, no
consequences. sickness/death until a certain
❖ May provide certain tax age may mean not getting
Insurance benefits. any benefits at all
❖ Some insurance companies
can go bankrupt if
companies fail to factor
significantly adverse
unforeseen circumstances.

Currencies are the

most generally accepted form
of money, including coins
and paper notes, which is
issued by a government and
circulate within an economy.
This includes Peso, Dollars,
Euro, and other currencies
that circulate within the
country or around the world. https://en.wikipedia.org/wiki/Philippine_peso

10 NegOr_Q4_Business Finance12_Module 1_v2

 Crypto currencies on the other hand is a
form of payment that can be exchanged online
for goods and services. Cryptocurrencies work
using a technology called blockchain.
Blockchain is a decentralized technology spread
across many computers that manages and
https://steemit.com/cryptocurrency/@tomyah/cry
ptocurrency-cryptoworld-blockchain
records transactions. Part of the appeal of this
technology is its security.11

Examples of crypto currencies are Bitcoin, Ethereum, Litecoin. Bitcoin Cash, etc.
wherein these cryptos do have their equivalent values in different currencies. These can also be
convertible to cash using a technology application.

Commodities are the basic goods

used in commerce that is interchangeable
with other commodities of the same type.
Three of the most commonly traded
commodities include oil, gold, and base
metals like nickel.

https://images.zawya.com/images/cia/zXlarge/180
305081047FQYI.jpg

Real estate investing involves the

purchase, ownership, management, rental and/or sale
of real estate for profit. Improvement of realty
property as part of a real estate investment strategy is
generally considered to be a sub-specialty of real
estate investing called real estate development. Real
estate is an asset form with limited liquidity relative
to other investments (such as stocks or bonds that
openly trade on financial markets). It is
also capital intensive (although capital may be gained
https://unsplash.com/s/photos/real-estate

11
https://www.nerdwallet.com/article/investing/cryptocurrency-7-things-to-know

11 NegOr_Q4_Business Finance12_Module 1_v2

through mortgage leverage) and is highly cash flow dependent. If these factors are not well
understood and managed by the investor, real estate becomes a risky investment. Insurance is a
contract or policy in which an individual or entity receives financial protection or
reimbursement against losses from an insurance company, i.e. life insurance, educational
plans, and VULs.

Insurance policies are used

to hedge against the risk of financial
losses, both big and small, that may result
from damage to the insured or her
property, or from liability for damage or
injury caused to a third party.

Policy holders are paying an

amount in regular basis to the insurance
company in return for the
insurance/protection provided and this is

my finance.com (2015)https://tinyurl.com/5n6hjx8h
called insurance premium. Sun Life of
Canada, Pru Life Insurance Corporation of
UK, Philippines AXA Life Insurance, Corporation, and BPI-Philam Life Assurance
Corporation are just some of the many Life Insurance Companies that Filipinos are
patronizing.

Some insurance providers like PruLife UK is providing VUL (Variable Universal Life
Insurance) to their clients. This VUL is a life insurance that offers both death, benefit, and
investment features.

Investments give high opportunities to investors and give them the highest return possible. On
the other hand, investments bring bad image to business enthusiasts as some are used for scams
and takes advantage to those who are new in the field. It is very important for every investor to
know their goals, know their priorities, and be valiant in facing the risks for higher risk can be
an indication of higher returns rather than with the low ones.

12 NegOr_Q4_Business Finance12_Module 1_v2

 ’s More

Task 4
Direction: Answer the following questions below. Write your answer in your notebook or

in a clean sheet of paper. Rubric for your answers is provided below.

1. Why would a risk-taker type of investor prefer equities over fixed income?

2. For the 10 years in your life, if you are to invest, where will you put it and why?

Essay Rubric for Task 4

CRITERIA SCORE
5 POINTS 3 POINTS 2 POINTS 1 POINT
FOCUS Sharp distinct Apparent point made No apparent Minimal
(The single controlling point about the topic , point but with evidence of the
controlling point made about the topic sufficient of evidence about topic
made with an with evident task. the topic
awareness of task awareness of task.
about a specific
topic)
CONTENT Substantial specific Sufficiently developed Limited content Superficial
(The presence of and/or illustrative content with adequate with inadequate and/or minimal
ideas developed) content demonstrating elaboration or elaboration or content
strong development and explanation. explanation.
sophisticated ideas.
ORGANIZATION Sophisticated Functional arrangement Confused or Minimal control
(The order developed arrangement of content of content that sustainsinconsistent of content
and sustained) with evident and/or a logical order with arrangement of arrangements
subtle transitions. some evidence of content with or
transitions. without attempts
at transition.
LANGUAGE/ Makes few errors in the Makes several errors in Makes several Very little
STRUCTURE use of verbs, noun, structure but do not errors that evidence of
choice of words but do affect overall interfere overall structure and
not hinder comprehensibility comprehensibilit comprehensibilit
comprehensibility y y is impeded.

Highest possible Score: 20 POINTS

13 NegOr_Q4_Business Finance12_Module 1_v2

 I Have Learned

Task 5

Direction: In your notebook or in a clean sheet of paper, complete the following

statements.

1. I have learned that

_____________________________________________________________________
_____________________________________________________________________
2. I have realized that
_____________________________________________________________________
_____________________________________________________________________
3. I will apply what I have learned
_____________________________________________________________________
_____________________________________________________________________

I Can Do

Task 6

Direction: Compare and contrast the following types of investments. Write your answers in

your notebook or in a clean sheet of paper.

1. Currencies vs. Cryptocurrencies

2. Stocks vs. Bonds
3. Mutual fund vs. UITF

The answers will be evaluated based on the following criteria:

Content - 5 points
Organization - 5 points
Clarity of idea - 5 points
Total - 15 points

14 NegOr_Q4_Business Finance12_Module 1_v2

A. Modified Identification: Choose the correct answer of each item from the choices in the
box.

Currencies Bank deposits Mutual funds Stocks Bonds

UITF Crypto currencies Commodities Real Estate Insurance

1. Offered by banks
2. Dividends are given to holders at the end of the year.
3. Powered by block chain technology.
4. Includes gold, oil and other base metals
5. Includes land improvements and other real properties
6. On some of traditional plans, no sickness/ death until a certain age may mean not
getting any benefits at all
7. Circulated globally and is the most liquid among other assets
8. Signifies Ownership in a corporation
9. Money placed into a banking institution for safekeeping
10. Units of corporate debts

B. Write TRUE if the statement is correct, otherwise FALSE.

1. Currencies are powered by blockchain technology.
2. Real Properties are illiquid and difficult to sell.
3. In investing, it is always considered that the higher the risk the higher the returns.
4. Investing commodities can also give investors high returns.
5. Currencies are considered as the biggest market in the world.

15 NegOr_Q4_Business Finance12_Module 1_v2