CONSUMER MATHEMATICS

Investing and Borrowing

The Problem
Which is the best investment option?
Currently, you have Php100,000. You want to invest this
amount for one year to maximize the interest earned
while minimizing the risk of losing money. You went to the
bank and you have presented with the following
investment option:

A. Savings account that earns 0.25% annually.

B. Time deposit account placed for 120 days that earns
0.3% annually.
C. Stock worth Php250 at present
Investing
Where do you keep your extra money?
Have you/your parents invested money?
BEST SAVINGS ACCOUNTS FROM THE TOP BANKS IN THE
PHILIPPINES
Opening a savings account
Essentials of a savings account:

1. You can deposit and withdraw cash anytime.

2. The bank pays you interest on the money that
you leave in your account.
3. Your money is insured up to Php500,000 through
the Philippine Deposit Insurance Corporation.
4. There are various type of savings account
Savings Account
 Interest
• Recall:
• For the use of the financial resources, the lender
charges the borrower a certain amount called
interest.
• Interest is a fee paid to the lender from the
borrower’s use of the money lent.
• Now,
• Interest is an amount to be paid to the
investor by a financial institution.
Simple Interest
Simple Interest is where the interest rate is fixed over a
period of time.
Formulas:

where
interest
principal or present value
rate (in decimal form)
time (in years)

where
future value
Simple Interest
Let us say you put Php280,000 in a bank which gives you 0.75%
interest. If you leave that Php280,000 in the bank for an entire year,
How much interest will you earn at the end of the year?
Interest

= (280,000)(0.0075)(1)
=Php2,100

You will have a total of

= 280,000+2,100
=Php282,100 in your account.
Simple Interest
You needed money and you withdraw the amount after only 90 days,
the interest you earn is

=
= Php 517.81.

The convention is usually 365 days but some banks may use 360 days
in the computation.

You will have a total of

= 280,000 + 517.81
= Php280,517.81.
Compound Interest
Compound Interest earns interest not only on the principal but also
on the interest earned in the prior period.

Formula

where
principal
rate per year (in decimal form)
time (in years)
number of times the interest is computed per year
Compound Interest
Let us take that Php280,000 you put into your bank. If you do not
touch it for a year and interest is computed or compounded, say,
daily, your account would be worth

Interest earned is

= 282,107.87 – 280,000
= Php2,107.87.
Comparing simple and compound interest

Simple Interest Compound Interest

Principal 280,000 280,000

Time 1 year 1 year
Rate 0.75% 0.75% compounded daily

Interest 2,100 2,107.87

Earned

Future 282,100 282,107.87

Value
Power of Compound Interest

https://www.youtube.com/watch?v=7zf7zob1Xdc
Savings account
Example

Assuming an interest rate of 1.5% per annum, a monthly

compounding period, and the following account information for
one information for one month, find the amount of interest that
would be credited to the client’s account each month.
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000
01/10 to 01/17 1,370,000
01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9
01/10 to 01/17 1,370,000
01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000
01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8
01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 1 1,365,200
01/19 to 01/24 1,345,920
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 1 1,365,200
01/19 to 01/24 1,345,920 6 8,075,520
01/25 to 01/31 1,395,920
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and diving by the number of days
in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 tp 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 1 1,365,200
01/19 to 01/24 1,345,920 6 8,075,520
01/25 to 01/31 1,395,920 7 9,771,440
TOTAL
Savings account
Solution
First we need to compute for the average daily balance(ADB). The
ADB is determined by adding the full amount of principal in the
account for each day of the period and dividing it by the number of
days in the interest period.

Dates Balance No. of Days Accumulated Balance

01/01 to 01/09 1,320,000 9 11,880,000
01/10 to 01/17 1,370,000 8 10,960,000
01/18 to 01/18 1,365,200 1 1,365,200
01/19 to 01/24 1,345,920 6 8,075,520
01/25 to 01/31 1,395,920 7 9,771,440
TOTAL 42,052,160
Savings account

The average daily balance is

The interest is
Withholding tax
Withholding tax
Time deposit account
Time deposit or certificate of deposit is a bank product almost the
same as savings account. With time deposit account, your money will
be kept by the bank for a fixed period of time (30 days, 60 days, 90
days or more) for an interest rate higher than savings account.

Terminating a time deposit account before the maturity date will

result to a penalty from the bank. The documentary stamp tax (DST),
which the bank usually shoulders will be now passed to the client.

Interest earned on time deposits is subject to withholding tax of 20%.

Time deposits are covered by the Philippine Deposit Insurance Corp.

up to Php500,000.
Time deposit account
At the expiry of the term, you may choose from the following
options, depending on the bank:

 Withdraw both the principal and the interest that your savings
earned by the end of the term or the maturity date of the
account.
 Take just your earnings and re-invest the principal.
 Re-invest both the original amount and the additional income,
and roll it over for the same term.
Time deposit account
Let us assume that we opened a Php100,000 time deposit account
that earns 2% per annum. We let it stay there for 32 days.
Considering the 20% withholding tax charged to peso time
deposits, the interest income on the account is:

Interest=(100,000)(0.02)()(0.80)
=Php 140.27

The 0.80 in our formula above means we are getting just 80% of
the total interest because we are deducting the 20% withholding
tax.
Thus, for a Php100,000 money placed for 32 days in a time
deposit paying 2% interest per annum, total money at the end is
Php100,140.27
Time deposit account
An individual has Php500,000 and is looking around for a bank
where he can leave his money for six months so it can earn
interest via time deposit. Help him complete the following table
so he can decide which bank to choose.
Time deposit account
For PBI Direct
Interest = (500,000)(0.0225)
Time deposit account

www.imoney.ph/time-deposit
Time deposit account

https://www.securitybank.com/personal/accounts/time-deposit/special-offer/
Stocks
Stocks represent shares of ownership in a company.

A share represents a unit ownership of a corporation’s profits and

assets. Ownership can be quantified by dividing the number of
shares owned by the number of shares issued.
A B C D

Each one owns ¼ of the business A owns 2/7, B and C owns 1/7 , D owns 3/7
Stocks

https://www.youtube.com/watch?v=hE2NsJGpEq4&list=PLf5N6dqfQaNR
HiN68HhNpFcRAl5Zfo0Qz&index=1
Stocks
Stockholder receives a certificate which contains details like the
following:
corporation's name, owner's name,
number of shares owned, certificate number, and
par value (per share amount appearing on the certificate).

Regulatory changes over the past decade have made it easier to go

all-digital, which is generally cheaper and more convenient for both
companies and their shareholders.
A dividend on a share is a payment made by the corporation to the
shareholder, when the corporation has a profit or surplus. Dividend
is based on par, not on market value.
Stocks
Types of stock
Common stock represents a share of company's asset and profit. The
board of directors oversee the management of the company, but do
not directly run the company. Common stock is high risk and high
return. Although common stocks yields higher return than other
stocks, common shareholders stand to lose most when a company
goes bankrupt.

Preferred stock. Holders of preferred stock, in most cases, cannot

vote. On the other hand, they are guaranteed a fixed dividend
before any dividends are distributed to other shareholders. In the
event of bankruptcy and liquidation, shareholders of preferred
stocks are paid off after creditors and before common shareholders.
Stocks
Par value is a per share amount appearing on stock certificates.
Earnings per share – the amount of profit to which each share is
entitled

Going public – slang for when a company is planning an IPO

IPO – short for initial public offering; an IPO is when a company sells
stock in itself for the first time

Underwriter – the financial institution or investment bank that is

doing all of the paperwork and orchestrating a company's IPO
MERRYMART Consumer Corp. is doing a P1.6-billion public
offer of its shares by the end of the quarter, it said in a statement
yesterday.

The grocery operator owned by businessman Edgar “Injap” J. Sia II

said it had filed an application with the Securities and Exchange
Commission (SEC) to offer 1,594,936,709 primary shares. The
application was received by the SEC on Jan. 27.
MerryMart is selling the shares at up to P1 each. The offer period is
targeted to be on March 23 to 27, and listing at the Philippine Stock
Exchange (PSE) on April 2.

The company tapped PNB Capital and Investment Corp. as lead

underwriter, issue manager and bookrunner for the offering.
Stocks
Stocks

Two ways to earn money from stocks:

1. When earnings are paid out to you in the form of dividends.

2. When there is an increase in share price.

The total stock return of investment (ROI) is the sum of

appreciation in the price and dividends paid divided by the
original price of the stock.
Stocks
Stocks Trading

Two types of stock market

1. Primary market is where a company issues its shares for the first
time via an IPO.

2. Secondary market is commonly known as stock market where

previously-issued stocks are traded without the involvement of
the companies which issued them. Some well- known stock
market include the New York Stock Exchange, NASDAQ, London
Stock Exchange and Hon Kong Stock Exchange.
Stocks
Example of a stock table

52-week High and Low – corresponds to the highest and lowest prices of stock in the past
52 weeks
Ticker symbol – unique name used to identify the stock
Dividend per share – the yearly dividend per share
Dividend yield – the percentage of return on the dividend
Price-Earning Ratio – the ratio between price per share and the annual dividend per share
Trading volume – the total number of shares traded in a day
Closing price - the price of the share when the market is closed for the day
Net change – the change in the stock price in comparison to the previous day’s price at
closing
Stocks
The total stock return of investment (ROI) is the sum of
appreciation in the price and dividends paid divided by the
original price of the stock.

Suppose you own shares of a company, which just paid you Php20
per share in annual dividends. If the original price per share is
Php1,000 and the current price per share is Php1,020, the total
stock ROI is

Total stock ROI=

= = 4%
Stocks
Some Important Tips

 Invest in companies you understand, whose business make

sense to you.
 Stay for a while, do not expect to gain a lot in your first week
as trading in stocks gives returns usually in the long term.
 Do not fear fluctuations, but rather make informed decisions
and not panic when such occurrence do occur.
 It is prudent to keep a margin of safety (about 15-20%) on the
stock price; this will help you deal with sudden corrections
the market may experience.
 Once you have plotted an investment plan for yourself,
deciding on the amount to invest, the particular stocks and
the time you plan to hold on to them, stay true to your plans.
Stocks
Stocks

https://www.investagrams.com/
Bonds
A bond is a loan.

https://www.youtube.com/watch?v=IuyejHOGCro&list=PLf5N6dqfQaNRHiN68Hh
NpFcRAl5Zfo0Qz&index=3
Bonds
Corporation issue bonds to whoever wants to buy them. When you
buy, you are lending money to the corporation that issues it. The
corporation in return, promises to pay interest payments to you for
the length of the loan.

Types of Bonds
1. Corporate bonds – issued by business to help them pay expenses;
are higher risk than government bonds but can earn more money.
2. Zero-coupon bonds – makes no coupon payments but instead is
issued at a considerable discount to par value.
Bonds
3. Government bonds- issued by the government to fund programs,
meet payrolls and pay their bills

Treasury Bills
Treasury Bills are short term and low-risk investments that are direct
and unconditional obligations by the Philippine government.

Treasury Bonds
Treasury Bonds are long-term, low-risk instruments that are direct
and unconditional obligations by the Philippine government.
Bonds
Bonds

If you invested 10,000

pesos in this bond, how
interest will you receive
quarterly?
Interest earned per year
with tax deduction
=10,000*.04875*.8= 390

Quarterly interest =
390/4=97.5 pesos
Stocks vs Bonds

STOCKS BONDS
kind equity debt
investor owner creditor
interest varying fixed
return higher
risk higher
assets higher claim
Mutual Funds

https://www.youtube.com/watch?v=ngfKXvfzC74&list=PLf5N6dqfQaN
RHiN68HhNpFcRAl5Zfo0Qz&index=4
Mutual Funds
A mutual fund is an investment company that pools together money
from different investors and invest them.

The mutual fund company issues share to the public that represent
their holding in the fund.

The net asset value per share (NAVPS) represent the price of one
share.

The NAVPS of the mutual fund changes every business day

depending on the market performance of the fund
Mutual funds

Four types of mutual funds

1. Money market fund – invest purely in short-term (one year or less)

debt instrument
2. Equity fund – invest primarily in shares of stocks
3. Bond fund – invest in long-term debt instruments of government
or corporation
4. Balance fund – invests both in shares of stocks and debt
instruments
Mutual funds
Mutual funds

On February 22, 2019, you invested 100,000 pesos under BDO

Peso Money Fund, how much is your money on February 4,
2020?
100,000/ 1572.7125 = 63.5844 units
63.5844*1618.1225= 102,887.35 pesos
Mutual funds

http://www.uitf.com.ph/top-funds.php?
class_id=2&currency=PHP&radio1=ytd&fmonth=&fday=&fyear=&tmonth=&tday=&tyear=&
btn=Filter#gsc.tab=0
Mutual funds
Good things
 You don’t have to select a specific stock or bond fund, the
balance fund will automatically choose the stock and bond
investment .
 It is a good choice when the investor is not an expert on investing
well and not ready to hire a financial adviser.

Not so good things

 The fees will be a little higher because you have someone else
doing the work of selection the funds for you.
Mutual Funds
Suppose you want to invest Php500,000 with the Sun Rise Financial
Equity Fund. At the time you made the investment , The NAVPS for
this particular equity fund is Php312.01.

Number of shares =

After one year, you decided to redeem all your shares. At this time
the NAVPS for the fund is Php350.24 per share. How much is the
value of your share?

(1602.51)(350.24)= Php 561,263.10

Other type of Investment
ETF

An exchange-traded fund (ETF) is a collection of securities—such as stocks—that tracks an

underlying index. The best-known example is First Metro Exchange Traded Fund, which
tracks the Philippine Stock Exchange index. ETFs can contain many types of investments,
including stocks, commodities, bonds, or a mixture of investment types. An exchange-traded
fund is a marketable security, meaning it has an associated price that allows it to be easily
bought and sold.

Forex
Foreign exchange is the process of changing one currency into another currency for a variety
of reasons, usually for commerce, trading, or tourism. According to the 2016 triennial report
from the Bank for International Settlements (a global bank for national central banks), the
average was more than $5.1 trillion in daily forex trading volume.
Warren Buffet

https://www.youtube.com/watch?v=d0XKtUXgpOw
Type of investor

https://www.pinoymoneytalk.com/test-what-type-of-investor-are-you/

https://www.thriventfunds.com/investing-style-quiz.html