Annuities Overview

Annuities

• A series of equal payments made at regular intervals
• Used for investments, retirement planning, or loans

Types of Annuities

• Ordinary Annuity: Payments are made at the end of each payment period (e.g., rent at the end of the month)
• Annuity Due: Payments are made at the beginning of each payment period (e.g., rent at the start of the month)

Factors to Consider

• Timing of First Payout:
  • Immediate Annuity: Begins immediately (best for retirees)
  • Deferred Annuity: Begins later (e.g., after a set number of years)
• Risk Tolerance:
  • Fixed Annuity: Guarantees stable income, low risk
  • Variable Annuity: Higher potential returns, but increased risk
• Payout Options:
  • Life Payout
  • Period Certain Payout
  • Joint-Life Payout
  • Life with Period Certain Payout

Taxation

• Tax-deferred growth: Taxes aren't paid until the money is withdrawn in retirement
• Early withdrawal penalties: May apply if funds are withdrawn before certain age or timeframe

Stocks

• Represents ownership in a corporation

Types of Stocks

• Common Stock: Provides ownership and voting rights
• Preferred Stock: Priority in dividends but typically no voting rights

Stock Returns

• Dividends: Regular income
• Capital Gains: Profit from selling stocks at a higher price compared to their purchase price

Advantages of Stocks

• Higher potential returns than bonds
• Ownership in the company

Disadvantages of Stocks

• High risk due to market volatility
• No guaranteed returns

Examples of Stock Transactions

• Buying 1000 shares of Jollibee Foods at a specific price and selling at another, resulting in a capital gain of a specific amount

Bonds

• Debt instruments used by organizations to raise funds

Types of Bonds

• Government Bonds
• Corporate Bonds
• Municipal Bonds
• Convertible Bonds

Bond Returns

• Interest Payments (Coupons): Regular income
• Capital Gains: Profit from selling bonds at a higher price

Advantages of Bonds

• Steady income through fixed interest
• Lower risk compared to stocks

Disadvantages of Bonds

• Lower returns than stocks
• Bond prices can fluctuate due to interest rate changes

Examples of Bond Transactions

• Buying a Philippine Treasury Bond with a specific face value, coupon rate, and period, and the resultant annual interest income

Financial Calculations: Current Yield

• A measure of annual income relative to market price
• Formula: (Annual Income / Current Market Price) x 100

Example Bond Current Yield Calculation

• Using an example with an annual coupon payment of P5,000 and a current market price of P100,000 results in yielding 5%

Example Stock Current Yield Calculation

• Using an example with 200 shares of a stock paying $10 per share yielding 4%

Ratio: Debt-to-Equity Ratio

• A quantitative relationship between two numbers (total liabilities and shareholders' equity)
• Formula: (Total Liabilities / Shareholders' Equity)

Stock Transaction Examples

• Buying and selling stocks, considering fees, to calculate costs. proceeds, and gains
• Transaction Example: A investor buys 100 shares of Jollibee Foods Corporation (JFC) at a price and a transaction fee and sells them, subsequently at another price and with a second transaction fee, resulting in a capital gain.