Podcast
Questions and Answers
What defines an ordinary annuity?
What defines an ordinary annuity?
What is a key characteristic of a deferred annuity?
What is a key characteristic of a deferred annuity?
Which type of stock typically has no voting rights?
Which type of stock typically has no voting rights?
What is a common disadvantage of investing in stocks?
What is a common disadvantage of investing in stocks?
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Which of the following provides a fixed interest payment to investors?
Which of the following provides a fixed interest payment to investors?
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Which kind of bond generally has the lowest risk?
Which kind of bond generally has the lowest risk?
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What happens to bonds when interest rates increase?
What happens to bonds when interest rates increase?
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What type of annuity guarantees stable income with low risk?
What type of annuity guarantees stable income with low risk?
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What determines if an investor chooses a life payout option?
What determines if an investor chooses a life payout option?
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Which of the following is a drawback of bonds compared to stocks?
Which of the following is a drawback of bonds compared to stocks?
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Study Notes
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- Tax-deferred growth: Taxes aren't paid until the money is withdrawn in retirement
- Early withdrawal penalties: May apply if funds are withdrawn before certain age or timeframe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.
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Description
This quiz delves into the fundamentals of annuities, including their definitions, types, and key factors to consider in planning. Learn about ordinary and due annuities, immediate versus deferred options, and the impact of risk tolerance on your financial decisions.
