MOI Reviewer Midterm PDF

I. Annuities A series of equal payments made at regular intervals. used for investments, retirement planning, or loans. Types of Annuities 1. Ordinary Annuity: Payments are made at the end of each payment period. (rent at the end of the month) 2. Annuity Due: Payments are made...

I. Annuities A series of equal payments made at regular intervals. used for investments, retirement planning, or loans. Types of Annuities 1. Ordinary Annuity: Payments are made at the end of each payment period. (rent at the end of the month) 2. Annuity Due: Payments are made at the beginning of each payment period.(rent at the start of the month) Factors to Consider 1. Timing of First Payout: ○ Immediate Annuity: Begins immediately (ideal for retirees). ○ Deferred Annuity: Begins later (e.g., after 20 years). 2. Risk Tolerance: ○ Fixed Annuity: Guarantees stable income; low risk. ○ Variable Annuity: Higher potential returns but increased risk. 3. Payout Options: ○ Life Payout ○ Period Certain Payout ○ Joint-Life Payout ○ Life with Period Certain Payout Taxation Tax-deferred growth. Early withdrawal penalties may apply. Retirement Focus II. Stocks Represents ownership in a corporation. Types of Stocks 1. Common Stock: Provides ownership and voting rights. 2. Preferred Stock: Priority in dividends but usually no voting rights. Returns Dividends: Regular income. Capital Gains: Profit from selling stocks at a higher price. Advantages Higher potential returns compared to bonds. Ownership in the company. Disadvantages High risk due to market volatility. No guaranteed returns. Examples Buying 1,000 shares of Jollibee Foods Corporation (JFC) at ₱220/share and selling at ₱240/share results in a capital gain of ₱20,000. III. Bonds Debt instruments used by organizations to raise funds. Types of Bonds 1. Government Bonds 2. Corporate Bonds 3. Municipal Bonds 4. Convertible Bonds Returns Interest Payments (Coupons): Regular income. Capital Gains: Profit from selling at a higher price. Advantages Steady income through fixed interest. Lower risk compared to stocks. Disadvantages Lower returns than stocks. Bond prices can fluctuate due to interest rate changes. Examples Buying a Philippine Treasury Bond with a ₱100,000 face value, 5% coupon rate for 10 years, results in annual interest income of ₱5,000. IV. Financial Calculations 1. Current Yield ○ A measure of annual income relative to market price Example (Bond): You purchase a government bond with: Annual Coupon Payment: ₱5,000 Current Market Price: ₱100,000 Example (Stock): You own 200 shares of a company paying ₱10 per share in annual dividends. If the stock’s current price is ₱250/share: 2. Ratio A ratio is a quantitative relationship between two numbers, showing how many times one value contains another. 3. Stock Transaction ○ Cost: Initial price of stocks. ○ Proceeds: Total earnings from selling stocks. ○ Gain: Profit after accounting for transaction fees. Example: An investor buys 100 shares of Jollibee Foods Corporation (JFC) at ₱250/share with a transaction fee of ₱500. Later, the investor sells the shares at ₱300/share with a transaction fee of ₱500.