Term Report

Introduction to Business Finance

Group Members:
Junaid Qazi (1539133)
Iqra
Gul
Farhana

Submitted to: Sir Muhammad Ahmed

 Introduction and overview
As per our assignment of IBF we have Rs. 5 Million in our bank account and
the challenge is to invest that money for 2 years in one of the following
categories:

1. Invest in the stock market.

2. Invest in real estate.

3. Invest in Prize Bonds.

Which investment is better Real Estate or Stocks? It completely depends on

the investor’s preferences and choice because it emphasizes more on your
personality as an individual. Practically no real estate could have beaten the
returns you earned if you invested in shares of banking, oil or cement sectors
in Karachi Stock Exchange (KSE), especially if you reinvested your
dividends. Similarly the risk of losing the value of your shares is equally
possible due to economic instability and when the index loses more than 10%
in a day or two, crashes are driven by panic, so the answer, as with many
things in life, isn’t as easy as it may seem.

Let us start by keeping an eye on both types of investments

Real Estate:
Investing in Real Estate you are purchasing a physical land or a property. If
the property that you possess is a vacant property that you intend to construct
some day you will need some capital to invest plus taxes imposed and
maintenance cost to hold your property is other additional. Some properties
generate cash in the mode of cheques and cash in reflection to properties
rented such as apartments, commercial buildings and houses to tenants.

Stock Market:
Investing in stocks is actually buying a part of company, that company of
which the shares are bought could be a company of any industry available in
stock market if a company floats 1,000,000 shares in the market owning
10,000 shares would make you own 1% of the company. When a company
makes profit you are entitled to cut off profit for every share you own.

Investing in Bonds (Prize bonds Investment) :

Prize Bonds Investment -There are millions worth of prize bonds bought each
year. But are they worth the investing in bonds? A prize bond is a lottery
bond and non-interest-bearing security that is issued by a government. As a
means of generating working capital for government projects. The approach
functions somewhat like a lottery in that each person holding the bond is
eligible to receive some type of cash prize each time a drawing is made. It is
important to note that a prize bond does not provide any type of returns in the
form of interest payments. The investor only earns a return if he or she wins.

Types of Prize Bonds :

Prize Bonds is a good investment and are bearer type of security available in
the denominations of. Rs.200, Rs.750, Rs.1,500, Rs.7,500, Rs.15,000,
Rs.25000 and Rs. 40,000. These bonds are issued in series. No fixed return is
paid but prize draws are held on quarterly basis. The draws are held under
common draw method and are published in newspapers. The average winning
chance on 1000 bonds is 6- 7 bonds of 3rd prize where as if you are lucky
enough you might get jackpot of 1st or 2nd prize but that is not very rare.

Pros of investing in Real Estate:

1- Real Estate is comparatively more reliable and feasible investment for
many. Real Estate is more acknowledgeable to all classes, home for instance
is a necessity and majority of us are taught since the beginning of the
importance of owning a house is imperative. The need adds more confidence
in buying more property and to further make extra money out of this
investment.

2. Investing in Real Estate Is basically investing in something that you can

see and you can feel. This is very important psychologically.

3. There is a chance that you can defrauded whilst investing in a Stock

Market but once you are investing in Real estate the probability is too low
because you can practically go on site and inspect it, check on Tenants and
check the building before you buy it.

Cons of Investing in Real Estate market:

1. You may have to pay taxes, Maintenance of the building and insurance of
your building

2. Exploding sewage and gas leaks etc…

Pros of Investing in Stock Market:

1. Investing in Stock is basically buying a piece of a certain company. More
the shares you own more powerful position you hold to make the decisions
for the future of the company as a member of board of director to the
company.

2. Highly skilled and professional personal are running the company where
you can relax at home and enjoy the fruit of investing shares in the company
without any Hassel.

3. Stocks of a reputable company also allow you to increase their cash

dividends as well as increase the profits year after year.

4. You can diversify your investment in many companies in less investment

compared to Real Estate.

5. Stocks can be liquidated in no time where when you plan to liquidate a

property that you own may take some extra time.
Cons of Investing in Stocks:
1. Although undoubtedly stocks have relatively generated wealth over the
long run but investors tend to act emotional and undisciplined to benefit they
are likely to lose money due to psychological factors.

2. The price of stocks may fluctuate dramatically in short-run. Rate of a share

of a certain company may be 100 Rs it can lose its value to 40 Rs in one day
and also it can gain 60 Rs in one day.

Why Real Estate Is More Feasible Than Stocks and Bonds:

1. You have a full control on your Investments if you invest in a physical
property. One tends to become in charge as a Chief Executive and can gain
profits as by renting it out. As the market grows and the economic cycle is in
favor, in this period the investor can make excess money.

2. When you invest in Real Estate. You are investing in something that you
can see and feel and utilize your investments. During bad economic cycles
the value might come down for a small period of time but in long run it
always has a trend going upward.

3. Possessing a property gives you a self satisfaction this asset holds the value
at the initial cost and grows with the time as the time passes.

4. If the property is attained in a central location and economically developed

region the stakes are higher and the chances of losing the value of the
property is comparatively lower, even in the slump the prices go down
comparatively slower and gain value back doubled.

5. Real Estate is less unpredictable you can trade in Real Estate if you have a
basic know how on the developments happening in a certain region you can
actually make stable rental income to meet your needs or save for future
investments.

My recommendation on investing either in Real Estate or Stocks, I believe

Investing in Real Estate would be on a higher side of recommendation as you
grow old by investing in a Real Estate the markets tend to mature with time
and can add value to it drastically, also the returns such as rental income can
stabilize your monthly expenses accordingly. Stocks are more of a gamble
and you never know when the crash might happen due to inflation.
 Methodology
 If we buy bonds of Rs 5 million of Rs. 200 and 750 bond

Average Win is 6-7 of 3rd prize per Series(10 Packets)

Rs. 750 bond 3rd prize= Rs. 9330

After 15% deduction tax deduction= Rs. 7930/-

Rs. 200 bond 3rd prize= Rs. 1250

After 15% deduction tax deduction= Rs. 1062/-

50 million

25 million 25 million
Rs. 200 (12500/100=125 pack) Rs. 750 (3300/100=33 Packets)
125 pack= 12.5 Series 33 Pack = 3.3 Series
6*12.5*7930= Rs. 594750/- 3.3*6*1062=Rs. 21027/-

Return =(594750+ 21027)/5000000 *100 =12.3% Per Quarter (49 % Annually)

Real Estate:
Defense phase 6

Price /ft = Rs. 16446/-

Avg Increase / ft = Rs. 1.39% (Rs. 230/- Annual increase per ft)

5 Million / 16446 = 300 ft residential plot.

(300 * 230) = Rs. 69000/- Profit per Year on 5 Million.

Gulshan
Price /ft = Rs. 10916/-

Avg Increase / ft = Rs. 1.41% (Rs. 155/- Annual increase per ft)

5 Million / 10916 = 460 ft residential plot.

(460 * 155) = Rs. 71300/- Profit per Year on 5 Million.

Bahria Town

Price /ft = Rs. 2743/-

Avg Increase / ft = Rs. 0.01% (Rs. 0.2/- Annual increase per ft)

5 Million / 2743 = 1822 ft residential plot.

(1822 * 0.2) = Rs. 400/- Profit per Year on 5 Million.

 Results and findings
We have seen the Analysis and come up with the conclusion that Investment
in Real estate is a secure investment but the profit growth is less as compared
to stocks and prize bonds. On the other side Stock market depends on rumor
and the profitability depends most of the time only on dividends which means
if a company is paying dividend we can assure our profit in that sense. But
the last option prize is the best of all which is not only a liquidity asset but it
also pays a large profit compared with other 2 scenarios. whereas Jackpot of
1st prize only depends on luck which we have not judged in our calculations.
 References
 Zameen. pk
 Open doors
 Psx.dps
 https://www.khaleejtimes.com/
 https://tribune.com.pk
http://www.pakistaneconomist.com