Identification
These are contracts that represent a monetary value and create a financial asset for one party and a financial liability or equity for another.
Financial Instruments
Floating Payments is the Present value of expected floating cash flow
True
Types of Financial Instruments
Cash Instruments and Derivatives Instruments
_______ measures the profit or loss from an
investment over a period.
Return
Customized contracts for buying or selling assets over the counter, used in currency and commodity markets to hedge against future price movements.
A. Forward B. Futures
C. Options D. Swaps
A. Forward
These are contracts whose value comes from an underlying asset like stocks, bonds, or currencies.
Derivatives
Derivatives shows ownership in a company.
False, stocks show ownership in a company.
Types of Bonds
Corporate, Government, and Zero-Coupon Bonds.
Derivatives are contracts whose value comes from an _________ ________ like stocks, bonds, or currencies.
underlying asset
Given:
Face Value = ₱10,000
Annual Interest = 12% (₱1,200)
Years = 5
Required Return = 8%
Fins the bond's fair value
A.₱13,120.44 B.₱12,958.25
C.₱11,033.13 D.₱10,987.78
B.₱12,958.25
This is the Possibility of losing money or not earning as much as expected.
Risk
Zero-Coupon Bonds are issued by companies
False, Corporate Bonds are issued by companies and Zero-Coupon Bonds are sold at a discount and redeemed at face value
Types of Derivatives
Futures, Forward, Options, and Swaps
________ ___________ are financial instruments whose value is directly influenced by the market — they can be easily transferred, bought, or sold.
Cash Instruments
Scenario: You are deciding whether to invest in a small business. Based on different possible economic conditions, the returns and their probabilities are:
Economic Condition Expected Return Probability
Boom 25% 0.3
Normal 15% 0.5
Recession 5% 0.2
A.10% B.12%
C.13% D.14%
D.14%
It helps investors and analysts assess if an investment is overvalued, undervalued, or fairly priced based on expected future benefits.
Valuation
Cash Instruments - These are financial instruments whose value is directly influenced by the market
True
Purpose and Use of Financial Instruments
Raise capital (e.g., issuing stocks or bonds)
Invest and earn income (e.g., buying securities)
Manage risk (e.g., using derivatives for hedging)
Facilitate trade and liquidity in financial markets
When combining assets, you can reduce risk through ___________.
Diversification
A. 10% B. 12% C. 14% D. 16%
C. 14%
This helps investors balance potential profit with uncertainty, using expected return, standard deviation, and portfolio risk.
Risk and Return Analysis
Preferred Stock gives you voting rights and dividends (based on profits).
False, Common Stock gives the owner voting rights and dividends based on profits while Preferred stocks gives no voting rights but fixed dividends with priority.
Give at least three Purpose of Valuation
Purpose of Valuation
To determine the fair price of investments.
To assess risk and return for decision-making.
To guide financial reporting and portfolio management.
To assess investment decisions (buy, sell, or hold).
To estimate company value for mergers, acquisitions, or financial reporting.
To measure risk and return trade-offs.
Stocks represent ownership in a company. Their value comes from _______ _______ ________ __ __________.
expected future dividends or earnings.
Ja is considering investing in AIS corporation. The company is expected to pay a dividend of P5 per share next year. The dividends are expected to grow at a constant rate of 6% per year. Ja requires a 10% on her investment. What is the fair value of stock using the Dividend Discount Model?
A. 83.33 B. 78
C. 125 D. 95
C. 125