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Financial Expert’s Corner<br />
Money and investing are quite difficult to comprehend because they<br />
invariably rely on computations that can range from simple to advanced<br />
calculations. Combine this with how busy people are nowadays and you<br />
have a situation where people just ask the following questions in judging<br />
an investment:<br />
• What is the interest or how much will my money earn?<br />
• When do I get my money back?<br />
• Are both the principal and interest guaranteed?<br />
However, thinking that a promised high return or interest over the<br />
short-term is better, makes sense only up to the point before it begins<br />
to run counter to the unbreakable law in investing which states that<br />
high potential investment return equals high risk; low potential<br />
investment return equals low risk.<br />
Risk vs. Return<br />
“OK, Harry,” Mang Domeng says, “Please explain to us what you<br />
mean by risk and investment return.”<br />
Harry continues with his lecture. This time around, he moves to<br />
his whiteboard and writes the following equations while the couple’s<br />
eyes are glued to the board. Harry says, “To better understand the<br />
workings behind risk and return, look at the formula for computing<br />
interest:<br />
Formula 1<br />
Principal x Net Interest Rate x Time = Peso Interest<br />
58 More Than Just Interest Rates
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