JCFAP Lecture Series:

Insular Life Edition

Insular Life MPH, Makati City
August 24, 2013




ARMAN V. CRUZ, CSE, LPT, MBA, DPA


Founding President Finance Educators Association (Fin.Ed)
Professor & Former Chairperson Finance and Economics Department, Adamson University
Independent Consultant United States Agency for International Development (USAID)
@ University of the Philippines Diliman
Member: Association of Marketing Educators (AME); Council of Economics Educators (CECON)


PLAN OF TALK
Reality Check & Financial Planning Simulation
The Lecture: Financial Market & All About Bonds
The Business Situation
Investment Options
Draw from Personal Experience
Final Words
__________________________________
__________________________________
__________________________________

Half Empty?
Half Full?
Arman V. Cruz, MBA
arman_cruz1023@yahoo.co.uk

Risk
mgmt.
CHIEF
FINANCE
OFFICER
Ayala Land, Inc.
I.T.
Lets start with the business game
Reality Check & Decision Making
To be a Millionaire
To be a Millionaireby fate
To be a Millionaireby choice
To be a Millionaire by chance
To be a Millionairebe an artist
To be a Millionaire
be a sports enthusiast

Perception Exercise (A)
Perception Exercise (B)

Inter-connected Disciplines
Accounting Past

Management Present

Finance Future
You and you alone
set the limits of your
performance.
You and you alone
set the limits of your
success.
Emil Quinto
It doesn't matter who you
are, where you come from.
The ability to triumph
begins with you. Always.

- Oprah Winfrey
16
Now what you have???
Income Savings = Expense
Financial Management Process
Resources Generation

Fund Allocation

Capital Structuring

Profit Supervision

Control
Financial Planning Simulation
Client Suitability Assessment
ANSWER No. of
Answers
x Points = Total Score
per Answer
A
B
C
D
Total Risk
Score
Financial Planning Simulation
Client Suitability Assessment
Investment Needs
Financial Planning Simulation
Client Suitability Assessment
1. Investment Objective:

What is your key investment objective?

a.) To protect principal amount of investments and earn steady
stream of interest income.
b.) To preserve capital or real value of investments
c.) To achieve growth through a balance between interest
income and capital gain over a medium term period.
d.)To achieve significant growth or capital appreciation over the
medium to long term period
Financial Planning Simulation
Client Suitability Assessment
2. Investment Period:

What portion of your investment can be placed in
medium or long term investments, ie. more than
3 years?

a.) 10% to 30%
b.) 40% to 60%
c.) 70% to 80%
d.) 90% to 100%
Financial Planning Simulation
Client Suitability Assessment
3. Liquidity:

Do you have regular liquidity requirements?

a.) I need to draw regular income from my investments and
may use a portion of the principal in the short term
b.) I do not need to draw regular income from my investments
nor do I see the immediate need to use any portion of the
principal in the short term.
c.) I have other sources of liquidity and do not see a real
need to use funds for the next 5 to 10 years
d.) I have other sources of liquidity and do not see a real
need to use funds for the next 10 years
Financial Planning Simulation
Client Suitability Assessment
Risk Appetite
Financial Planning Simulation
Client Suitability Assessment
1. Investment Knowledge and Experience

1.1 What is your knowledge and experience on investments?

a.) Minimal. I know bank deposits, BSP SDA, T-Bills and Money Market
placements.
b.) Low. Outside deposits and short term government securities, I have
experience investing in money market funds such as corporate bonds
and fixed income bonds.
c.) Medium. I have experience investing in mutual funds, UITFs, foreign
currencies and direct investment in listed stocks and bonds.
d.) High. I have an extensive experience in investing and have a broad
understanding of the domestic and global capital markets in general.
Financial Planning Simulation
Client Suitability Assessment
1. Investment Knowledge and Experience

1.2 How many years of experience have you had
investing in securities, either directly or through a
fund manager?

a.) 1 year or less
b.) More than 1 year up to 5 years
c.) More than 5 years up to 10 years
d.) More than 10 years
Financial Planning Simulation
Client Suitability Assessment
2. Risk Tolerance

2.1 What is your tolerance for risk?

a.) I accept steady and minimal returns without any fluctuation in the
principal amount of my investments
b.) I accept minimal fluctuations in the principal amounts of my
investments for commensurate returns.
c.) I accept a fair amount of fluctuation in the principal amount of my
investments in order to achieve above average returns and capital
growth over the medium term.
d.) I am prepared for high degree of volatility and possibly losses for
certain periods in the principal amount of my investment in order to
achieve high returns or capital growth over a period of 5 years or more
Financial Planning Simulation
Client Suitability Assessment
2. Risk Tolerance

2.2 If the value of your portfolio decreased by 20% in one year,
how would you react?

a.) I will be very concerned and will immediately put my
investment back to cash ( ie. in the form of deposits
and/or short term government securities)
b.) I will be very concerned and will find safer investment
outlets which are not necessarily cash
c.) I will be concerned and I will review the aggressiveness
of my portfolio
d.) I will NOT be concerned about the short-term fluctuation
of certain investments in my portfolio
Financial Planning Simulation
Client Suitability Assessment
2. Risk Tolerance

2.3 What is your average net worth for the last 2 years?

a.) Php5 Million (US$100,000) and below
b.) Over Php5 Million (US$100,000) up to Php30
Million (US$600,000)
c.) Over Php30 Million up to Php60 Million
(US$1.2Million)
d.) Over Php60 Million
Financial Planning Simulation
Client Suitability Assessment
ANSWER No. of
Answers
x Points = Total Score
per Answer
A 5
B 10
C 15
D 20
Total Risk
Score
Financial Planning Simulation
Client Suitability Assessment
Up to 70 points

Conservative. Principal protection or capital preservation is the main concern; would settle for
lower but fixed returns

75 to 100 points

Moderately Conservative. Seeks a relatively stable return on investment that is slightly higher
than tha of traditional term deposit

105 to 130 points

Moderately Aggressive. Seeks a relatively higher return on investment and is willing to invest
in securities with tenors of more than 1 year, seeks a balance between growth in capital and
income

Over 130 points

Aggressive. Growth and earning the highest returns are the main concern and is willing to take
possible loss of initial investment in return for potential higher long term results.
Financial Planning
Financial Planning is planning for and
managing lifes financial outcomes

WHAT FINANCIAL PLANNING
CAN DO FOR YOU?
Put You In Control of Your Financial Situation

Provide Clarity and Purpose Toward Fulfilling
Lifestyle Goals

Provide Financial Peace of Mind

Financial Market Overview
Overview of the Financial Market
Financial Market
Money Markets
Bank
accounts
Treasury
bills
Commercial
Papers
Capital Markets
Bonds
Equities
www.pseacademy.com.ph
Risk and Reward Principle
Low risk
High risk
Options
Futures
Stocks
Real estate
Equity mutual funds
High income bonds or debt
Government bonds or debt
Money market or bank accounts
Cash deposits, notes, bills
Cash and cash equivalents
Base
Middle
Summit
moderately aggressive
moderately conservative
conservative
aggressive
Overview of the Financial Market
www.pseacademy.com.ph
Two Methods of Long-Term Financing
Resources = Sources
Stockholders
Equity
Assets
Liabilities
Equity Financing: Stockholders
Debt Financing: Bondholders
Bondholders
Bonds (debt)Interest payments to bondholders
are an expense that reduces taxable income.
Stock (equity)Dividend payments are made
from after tax net income and retained earnings.
Earnings per share on common stock can often
be increased by issuing bonds rather than
additional stock.
Why issue bonds rather than stock?
Stockholders
Two Methods of Long-Term Financing
BONDS
Bond Terminology
Copyright 2009
Pearson Prentice Hall.
All rights reserved.
Capital Market Participants

Primary issuers of securities:
National and local governments: debt issuers
Corporations: equity and debt issuers

Largest purchasers of securities:
You and me
Characteristics of Bonds Payable
A bond contract is called a bond indenture
or trust indenture.
Long-term debtrepayable 10, 20, or 30
years after date of issuance.
Issued in face (principal) amounts of
$1,000, or multiples of $1,000.
Contract interest rate is fixed for term (life)
of the bond.
Face amount of bond repayable at maturity
date.
Characteristics of Bonds Payable
4 When all bonds of an issue mature at the
same time, they are called term bonds. If the
maturity dates are spread over several dates,
they are called serial bonds.
4 Bonds that may be exchanged for other
securities are called convertible bonds.
4 Bonds that a corporation reserves the right to
redeem before maturity are callable bonds.
4 Bonds issued on the basis of the general
credit of the corporations are debenture
bonds.
The Present-Value Concept and
Bonds Payable
When a corporation issues bonds, the price
that buyers are willing to pay depends
upon three factors:
1. The face amount of the bonds, which is
the amount due at the maturity date.
2. The periodic interest to be paid on the
bonds. This is called the contract rate
or the coupon rate.
3. The market or effective rate of interest.
Copyright 2009
Pearson Prentice Hall.
All rights reserved.
Bonds
Bonds are securities that represent debt owed by
the issuer to the investor, and typically have
specified payments on specific dates.

Types of bonds we will examine include long-term

1. Government bonds (T-bonds), and
2. Corporate bonds.
Treasury Bond
No default risk since the Treasury can print money
to payoff the debt
Very low interest rates, often considered the risk-
free rate (although inflation risk is still present)
Treasury Inflation-Indexed Securities:
the principal amount is tied to the current rate of
inflation to protect investor purchasing power
Treasury STRIPS: the coupon and principal
payments are stripped from a T-Bond and sold as
individual zero-coupon bonds.

Treasury Notes and Bonds
Treasury Bond Interest Rates
Treasury Bond Interest Rates:
Bills vs. Bonds
Corporate Bonds
Typically have a face value of $1,000, although
some have a face value of $5,000 or $10,000
Pay interest semi-annually
Corporate Bonds
Cannot be redeemed anytime the issuer wishes,
unless a specific clause states this (call option).
Degree of risk varies with each bond, even from the
same issuer. Following suite, the required interest
rate varies with level
of risk.
The degree of risk ranges from low-risk (AAA) to
higher risk (BBB). Any bonds rated below BBB are
considered sub-investment grade debt.

Debt Ratings
Making money:
Interest and capital gains
There are two ways to make money from a bond either by earning interest or capital
gains.
Let's say that you have a $1,000 bond that pays 6% interest for five years. If you hold that
bond until the very end of this term (known as the maturity date), youll collect five interest
payments of $60 for a total of $300.
$60.00
Year 1 (6% interest
on $1,000)
Year 2 (6% interest
on $1,000)
$60.00
Year 3 (6% interest
on $1,000)
$60.00
Year 4 (6%
interest on $1,000)
$60.00 $60.00
Year 5 (6%
interest on $1,000)
$1,300.00
Total principal and
interest (at maturity
date of 5 years)
Principal
amount
$1000.00
You could also decide to sell that bond to someone else for $1,100. In that
case youd earn a capital gain of $100 (plus whatever interest payments you
had received in the meantime).

Now, why would someone pay you $1,100 for a bond that only cost you
$1,000?
Selling bonds @
Premium & Discount
Your $1,000 bond pays 6%
interest. Since you bought that
bond, however, interest rates
have gone down. Similar
companies are now only offering
a 5% interest rate on their bonds.
Your original rate looks pretty
good to another investor. So you
can sell that 6% bond at a higher
cost than you paid for it, which
is called selling for a premium.
However, if interest rates
have gone up, and similar
companies are now offering
8%, you may have to sell
your bond for less which is
known as selling at a
discount.
Interest rates and bond
prices, then, are like a see-
saw when interest rates go
down, bond prices go up
(and vice versa).
Areas of Consideration
Bond Market
Top-Down Approach
A. Economy (Phils.)
B. Industry (Banks)
C. Company
(BPI)
I. FUNDAMENTAL ANALYSIS
Measures of Economic Activity
Consumer Spending Inflation
Gross Domestic Product Foreign Exchange Rate
Interest Rate Unemployment
National Debt Balance of Trade
I. FUNDAMENTAL ANALYSIS
Involves examination of a firms accounting statements and other financial
and economic information to assess the economic value of a companys stock


Getting to know the company background and history
Understanding the corporate culture management styles and
practices, industry standing, diversification policies


Ratio analysis
Trend analysis
company valuation
Qualitative
Quantitative
I. FUNDAMENTAL ANALYSIS
Financial Statements
Income Statement
Balance Sheet
Cash Flow Statement
I. FUNDAMENTAL ANALYSIS
Financial Ratios
RATIOS
A. Profitability
B. Asset-Utilization
C. Liquidity
D. Debt-Utilization
E. Market/Price
F. Others
FIGURE/RATIO
1. Net Income
2. Dividend Yield
3. Earnings Per Share
4. Price Earnings
5. Price to Book Value
6. Return on Equity
7. Du Pont Analysis
I. FUNDAMENTAL ANALYSIS
II. Technical ANALYSIS
Chart
CANDLE STICK
=
=
Personal Finance and Investment
RISK REWARD TRADEOFF


Higher Risk Higher Return
of Product Potential


Lower Risk Lower Return
of Product Potential

The Business Situation
Know the economic scenario.
The world remains in a slump as the global
economy experiences one of the worst crises.
In the US, 15 Million people have lost their jobs
since 2007.
Former Federal Reserve Chairman Allan Greenspan
said that, last month, another 260,000 US citizens
became unemployed such that unemployment rate
will most likely hit double digits.
Now. ..Bernakes announcement of tapering
investment

The moment one gives close attention to anything, even a
blade of grass, it becomes a mysterious, awesome,
indescribably magnificent world in itself. - Buddha
The Asian financial crisis
65
Enron and other scandals
66
The U.S. subprime mess
67
| 4

Eurozone: A Continuous Gloom and Contagion

The countries of the Eurozone are suffering
from an excessive level of Debts.

The recent bailout of banks in Spain saved the
Spanish Financial system and the corner stone of
the contagion (firewall) of the Greek crisis.

A crisis usually starts by a default of payment: July
is the big redemption month.

BPI-Philam Life Assurance Corp. confidential and proprietary information. Not for distribution.
BPI-Philam Life Assurance Corp. Confidential and proprietary information. Not for distribution
Financial Crisis
Reduction in customers of saving accounts.
Due to low interest rate
Insecurity policies of the bank, etc.
Inability of customers to repay the loans
Bad borrowing practices
Elevated interest rates
Unemployment and other external factors
Financial Crisis
Wiliness
or Ability
to Repay
the loan
Fore
closures
(inventory
of homes)
Value of
houses
Stability /
liquidity of
Banks
Safe
deposits/
Investmen
ts
Business
loans and
economic
Activity
Unemploy
ment
Subprime Mortgage Crisis
Fall of
financial institutions
Fall of other
Economic structures
Investment Options
What is the best
FINANCIAL PRODUCTS
COMMON FINANCIAL
PRODUCTS
YIELD
MIN INV RISK ADVANTAGE DISADVANTAGE
Low High
Savings
Savings / ATM 0.25% 1.00% 2,000 Low Liquidity / Access Low Interest
Checking 0.00% 1.00% 5,000 Low Payment Convenience Low or No Interest
Time Deposit 0.50% 3.00% 10,000 Low High Interest ST Lockup, Pre-term Chrg
Special Dep Acct 3.50% 6.00% 1,000,000 Low Higher Interest 5Yr Lockup, High Entry
Loans
Credit Cards 18% 42% 3,000 n.a. Payment Convenience Interest & Annual Charges
All Purpose Loan 12% 24% Equity n.a. Funds for All Purpose High Loan Rates / Reqs
Home Loan 10% 15% Equity n.a. Funds for Property Purchase High Loan Rates / Reqs
Auto Loan 10% 18% Equity n.a. Funds for Auto Purchase High Loan Rates / Reqs
Business Loan 12% 24% Equity n.a. Set Up / Operating of Funds High Loan Rates / Reqs
Insurance
Life n.a. n.a. Ins Prem Low Answers "What If?" Low ROI
Non-Life n.a. n.a. Ins Prem Low Property Conservation Cost / Claim Req
Health n.a. n.a. Ins Prem Low No Cash Out Medical Cost of Insurance
Pre-need n.a. n.a. Ins Prem Med Need Specific Reputation
Variable ? ? Ins Prem Low-Med Insurance w/ Investment High Entry
Investments
Money Market 1.50% 5.00% 10,000 Low Short Term, Liquid Low Yield
Trust Funds 3.00% 25.00% 50,000 Low-Med Diversification High Initial Entry
Mutual Fund 3.00% 30.00% 5,000 Low-Med Fund Owner, Diversify, Low Initial Long Term
Bonds 3.00% 12.00% 100,000 Med More Secure Moderate Yield High Initial for Corp Bonds
Stocks ? ? Lot Size High High Return Potential Volatile, Min brokers Fees
Personal Finance and Investment
Low High
Savings / ATM 0.25% 1.00% 2,000 Low Liquidity / Access Low Interest
Checking 0.00% 1.00% 5,000 Low Convenience Low or No Interest
Time Deposits 0.50% 3.00% 10,000 Low Higher Interest
Lockup, Pre-term
penalty
Special Deposit
Accounts
3.50% 6.00% 1,000,000 Low Higher Interest
Lockup, Pre-term
penalty
Money Market 1.50% 5.00% 10,000 Low Short Term, Liquid Low Yield
Trust Funds 3.00% 25.00% 50,000 Low-Med Diversification
High Initial Entry,
Long Term
Mutual Funds 3.00% 30.00% 5,000 Low-Med
Fund Owner, Diversification,
Low Initial
Long Term
Bonds 3.00% 12.00% 100,000 Med More Secure Moderate Yield
High Initial for Corp
Bonds
Stocks ? ? Lot Size High High Return Potential
Volatile, Min
brokers Fees
RISK ADVANTAGE DISADVANTAGE
Savings
Investments
COMMON FINANCIAL
PRODUCTS
YIELD
MIN INV
FINANCIAL PRODUCTS
Personal Finance and Investment
Investment
STOCKS
Mutual Fund Investment is a form of a Collective Investment Scheme, where
Professional Fund Managers avail of many Prime Investments which require high
investment funds to acquire. Investment returns are passed back to the investors
reflected in the Net Asset Value of the Mutual Fund.

Investor
I
N
V
E
S
T

I
N
V
E
S
T
M
E
N
T

R
E
T
U
R
N
S

Investor
Investor
Investor
Investor
Investor
Investor
EQUITY
FUND
(STOCKS)
BOND FUND
Investor
Investor
Investor
Investor
Investor
Investment
Fund Management & Securities
Investment
Returns thru
NAVPs
Pooled
Funds
Investment
MUTUAL FUND
Board Rate
%

Asia United Bank 1.250
Banco De Oro 1.875
Bank of Commerce 1.750
Bank of the Phil. Island 2.125
Chinabank 2.750
Chinatrust 1.500
Deutsche 2.000
East West Bank 2.875
Metrobank 1.875
Phil. National Bank 2.000
Planters Bank 3.625
RCBC 2.250
Security Bank 2.500
Sterling Bank 3.625
UCPB 0.875
Union Bank 2.875
J une 2012
30 Day Peso Time Deposit Rates
(Gross per annum, P1M)
Board Rate
%

Asia United Bank 0.750
Banco De Oro 0.375
Bank of Commerce 1.000
Bank of the Phil. Island 0.375
Chinabank 0.500
Chinatrust 0.500
Deutsche 0.010
East West Bank 1.500
Metrobank 0.250
Phil. National Bank 0.200
RCBC 0.438
Security Bank 0.500
Sterling Bank 1.875
UCPB 0.375
Union Bank 0.400
J une 2012
Dollar Time Deposit Rates
(Gross per annum, P1M equiv)


1. Statement of Account
2. Text Message
3. E-mail
4. Official Website
5. Customer Service
6. Investment Servicer
7. Newspapers
8. PIFA Website
Investment Monitoring
Draw from
Personal Experience

My RTBs
Earnings
Principal: Php30,000.00

Quarterly Interest: Php352.50

Annually: Php1,410.00

At maturity: Php7,050.00
Best practice institutions manage risk,
not eliminate them.

The watchwords are:

Risk by choice, not by chance
Exposure by choice, not by chance


Final Words

Investors
Provide the
capital
When Profit comes through an exchange of a resource
while one party befitting out of other's loss.

1. If the number of people fall in debt increases,
IT IS PROFITABLE FOR BANKS.

2. If the number of patients increases,
IT IS PROFITABLE FOR MEDICAL COMPANIES AND
DOCTORS.

4. If there are competing students,
IT'S PROFITABLE FOR A TUTOR.

5. If hundreds of people die every day,
THE COFFIN MAKERS WILL BE HAPPY.

Invest in companies that
are profitable today and will
be more profitable in the
coming years ahead.
The road
to
improve
profits
Operating System called MONEY
MONEY
Creates Disparity
Centralizes Power
Brings Social Vices
Perpetuates Slavery
Feeds Manipulation
Feeds Consumerism
Controls Resources
95% Crimes are money
or property related
Medical Tribune (2004), Stitches The Journal of Medical Humour, December 1-15, p. 30
DAR 2007
Unsustainable Lifestyles!
What next?
Disclosure
Accountability
Change?
1978
95%
The Iceberg of Company Value
2009
Sources: For 2009, Hollender, Orgain, and Nunez, The Business Case for Sustainability
[accessed July 30, 2011], Kaplan Eduneering/Seventh Generation Sustainability Institute, February
2010; for 1998 and 1981, Roberts, Keeble, and Brown, The Business Case for Corporate
Citizenship, Arthur D. Little, 2002, p. 1; for 1978, Stewart, Accounting Gets Radical, Fortune, April
16, 2001.
1998 1981
Intangibles
/ Non-Financials
/ Reputation / Goodwill
25%
Market Value / Capitalization
29%
Tangibles
/ Financials
75%
17%
83%
5%
71%

http://www.dreamstime.com/business-teamwork---solution-image2191262
http://www.dreamstime.com/teamwork-image994294
transparency accountability
trust
intellectual
rights
diversity sustainability
honesty
DAR 2007
effectiveness
efficiency
productive
doing the things right
doing the right things
doing the right
things right
TASKS RELATIONSHIPS intangibles
tangibles
In Conclusion
The only predictable future is the one that you
create!

You are able to recognize who you are, determine
what you want to do, conduct research and create a
plan of action to take you where you want to go.

You are in control!
Networking & Linkages
References
Dogelio, Joe Marie E. (2010). Career Development & Management Seminar at ACLC
Cubao, Security Consultant/Director-Unified Group of Company

Villafuerte, Jay. (2009). Perfect Ramen Optimizing Career Opportunities: Prospects and
Challenges for Future Professionals, Credit & Collection Manager-Getz Brothers
Philippines, Inc.

Ponce, Christopher (2012). Mutual Funds Investments, Cocolife Asset Management.
Thank you

Life is a rope that swings us through hope.

Always believe

Today is better than Yesterday
and Tomorrow will be much better than Today!

(Unknown Author)
Agyamanak




arman_cruz1023@yahoo.co.uk




Copyright 2013
By Arman V. Cruz
Manila, Philippines
No part of this presentation can be reproduced
without written permission of the author.