Week 5 and 6 - Module 8 (Basic Concepts of Stocks and Bonds)
Week 5 and 6 - Module 8 (Basic Concepts of Stocks and Bonds)
Week 5 and 6 - Module 8 (Basic Concepts of Stocks and Bonds)
bond, (3) Describe different markets for stocks and bonds and (4) Analyze the different indices
for stocks and bonds.
Code: M11GM-IIe-1, e-2 and e-3
Semester: 1st Semester
Quarter: 2nd Quarter
Number of Hours: 4 Hours
Prepared by:
MARILOU V. TOMPONG
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WHAT’S NEW
LESSON 1
Stocks and Bonds
diligently.
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What I know…
PRE – TEST
Direction: Choose the letter of the correct answer and write the
correct letter on the separate sheet of paper.
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9. It is ratio of the annual dividend per share and the market value per share.
a. Stock Market b. Bond Market
c. Stock Yield Ratio d. Par Value
10. It is a method of measuring the value of a section of the bond market.
a. Stock Index b. Bond Index
c. Stock Yield Ratio d. Bond Yield Ratio
11. A certain corporation declared a 5% dividend on a stock with a par value of ₱900.00. Mrs.
L owns 250 shares of stock with a par value of ₱900.00. How much is the dividend she
received?
a. ₱12,150.00 b. ₱11,150.00
c. ₱11,250.00 d. ₱12,250.00
12. Mr. Vincent Gomez bought sixty ₱1,500.00 ACTS bonds at 103. What is his total
investment in ACTS bonds?
a. ₱109,270.00 b. ₱97,700.00
c. ₱92,200.00 d. ₱92,700.00
13.It is fixed period of time (in years) at which the bond is redeemable as stated in the bond
certificate; number of years from time of purchase to maturity date .
a. Term b. Rate
c. Stock Yield Ratio d. Bond Yield Ratio
14. Mrs. Scarlet owns 65 bonds with a par value of ₱2,000 each and pays 10 %
interest.Whatannual income does Mrs. Scarlet get from these bonds?
a. ₱10,000.00 b. ₱11,000.00
c. ₱12,000.00 d. ₱13,000.00
15. Find the yield on ₱5,000.00, 12% ACTS bond priced at 95 plus ₱20 commission.
a. 11.58% b. 12.58%
c. 13.58% d. 14.58%
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LET’S EXPLORE:
Your grandparents gave you ₱175,000.00 on your 16th birthday. You were instructed
to invest the money so that the earnings can be used to pay for your tuition fee in college.
Having heard about the risks and rewards of the stock market from you parents, you become
interested in buying stocks in a particular company. Below are the options given to you by
your parents:
Option 1: Company ABC’s selling stock is ₱1,500.00 per share that will have a dividend of
₱200.00 per year. The stock can be sold after two years at ₱2,000.00 and the
market requires a rate of return of 15%.
Option 2: Company XYZ’s selling stock is ₱1,000.00 per share that will have a dividend of
₱180.00 per year. The stock can be sold after two years at ₱2,000.00 and the
market requires a rate of return of 7%.
WHAT’S NEW
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Stocks can be bought or sold at its current price called the market value. When a
person buys some shares, the person receives a certificate with the corporations name,
owners name, number of shares and par value per share.
Stock valuation is important in order to compare the price of the stock with respect to
the market.
Bonds
A bond is a certificate which proves that a company or corporation borrowed money from a
certain group of individuals or investors for a definite period of time at a fixed rate. Owning a
bond is just like saving money from a bank in which you will earn interest from the amount
borrowed.
A bond can be bought from a company or other people. The bond is said to have a high value
if it earns high interest payment compared to the market interest rate. Otherwise, the bond
is valued low.
Bonds are interest bearing security which promises to pay amount of money on a certain
maturity date as stated in the bond certificate. Unlike stockholders, bondholders are lenders
to the institution which may be a government or private company. Some bond issues are the
national government, government agencies, government owned and controlled corporations,
non-bank corporations, banks and multilateral agencies.
A form of equity financing or raising money by A form of debt financing, or raising money by
allowing investors to be part owners of the borrowing from investors
company.
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Stock prices vary every day. These prices are Investors are guarantee interest payments and a
reported in various media (newspaper, TV, return of their money the maturity date.
internet, etc.
Higher risk but with possibility of higher returns Lower risk but lower yield.
Can be appropriate if the investment is for the Can be appropriate for retirees (because of the
guaranteed fixed income) or for those who need
long term (10years or more). This can allow
the money soon (because they cannot afford to
investors to wait for stock prices to increase if
take a chance at the stock market)
ever they go low.
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➢ Coupon – periodic interest payment that the bondholder receives during the time
between purchase date and maturity date; usually received semi-annually
➢ Coupon Rate – the rate per coupon payment period; denoted by r
➢ Price of a Bond – the price of the bond at a purchase time; denoted by P
➢ Par Value or Face Value – the amount payable on the maturity date; denoted by
F
➢ Term (or Tenor) of a Bond – fixed period of time (in years) at which the bond is
redeemable as stated in the bond certificate; number of years from time of
purchase to maturity date .
➢ Fair Price of a Bond – present value of all cash inflows to the bondholder
What Is It?
Examples in Relation to Stocks.
Example 1. A certain financial institution declared a ₱30,000,000.00 dividend for the common
stocks. If there are a total of ₱700,000.00 shares of common stock, how much
is the dividend per share?
Solution:
Given: Total Dividend = ₱30,000,000.00
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𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒𝑠
=
= 42.86
Therefore, the dividend per share is ₱42.86
Corporation A
Given: Dividend per share = ₱8.00
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Dividend per Share
Stock Yield Ratio =
Market Value
=
= 0.1538
= 15.38%
Corporation B
Given: Dividend per share = ₱12.00
Market Value = ₱95.00
=
= 0.1263
= 12.63%
Corporation A has a higher stock yield ratio than Corporation B. Thus, each peso would
earn you more if you invest in Corporation A than B. If all things are equal, then it is wiser to
invest in Corporation A.
As. Example 3 shows, the stock yield ration can be used to compare two or more investments.
What Is It?
Examples in Relation to Bonds.
Example 1. Determine the amount of the semi-annual coupon for a bond with a face value
of ₱300,000.00 that pays 10%, payable semi-annually for its coupons.
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Solution:
Given: Face Value F = ₱300,000
Coupon Rate r = 10%
Find: Amount of the Semi-annual Coupon = ?
Annual Coupon Amount = 300,000 ( 0.10) = 30,000
Semi-annual Coupon Amount : 30,000 (1/2) = 15,000
Thus, the amount of the semi-annual coupon is ₱15,000.00
Example 2: Ms. Claire Garcia bought fifty ₱1,000.00 ACTS bonds at 103. What is her total
investment in ACTS bonds?
Solution:
Market Price of 1 bond: 1.03 x ₱1,000 = ₱1, 030.00
Total investment: 1,030 x 50 = ₱51,500.00
When bonds are bought and sold through a broker, the broker charges a broker’s
commission or brokerage fee. Hence, the amount investment becomes the market price of the
bonds plus the broker’s commission.
Example 3. Mrs. Go owns 45 bonds with a par value of ₱1,000 each and pays 8 ½ % interest.
What annual income does Mrs. Go get from these bonds?
Solution:
Given: Number of Bonds = 45
Rate r = 8 ½ %
Par Value = 1,000
Find: Annual income= ?
Par Value of 45 bond: 45 x ₱1,000.00 = ₱45,000.00
Annual Income = Par Value of Number of bonds x rate x time
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= ₱45,000 x 0.085 x 1
= ₱3,825.00
The annual income for one year is ₱3,825.00
Example 4. Find the yield on ₱1,000.00, 9% ACTS bond priced at 94 plus ₱10 commission.
Solution:
Given: Par Value = 1,000
Rate r = 9 %
Commission = 10
Find: Yield (rate of income)= ?
Annual Income: ₱1,000.00 x 0.09 x 1 = 90
Amount Invested : Market Price + Commission
= (0.94 x ₱1,000) + ₱10
= ₱940 + ₱10
= ₱950.00
𝐴𝑛𝑛𝑢𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒
Yield (Rate of Income) =
𝐴𝑚𝑜𝑢𝑛𝑡 𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑
= = 0.0947
= 9.47%
The yield on the investment is 9.47% or ACTS Corporation bond yields at 9.47%.
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Activity 1.
1. Tim bought 50 shares of Clarky stock at ₱685.00 per share and paid ₱956.00
commission. Find Tim’s total investment.
2. A land developer declared a dividend of ₱10,000.00 for its common stock. Suppose
there are 600,000 shares of common stock, how much is the dividend per share?
3. A property holdings declared of ₱9 per share for the common stock. If the common
stock closes at ₱76, how large is the stock yield ration on this investment?
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WHAT I HAVE LEARNED
Stocks can be bought or sold at its current price called the market value. When a person buys some
shares, the person receives a certificate with the corporations name, owners name, number of shares and
par value per share.
A bond is a certificate which proves that a company or corporation borrowed money from a certain group
of individuals or investors for a definite period of time at a fixed rate. Owning a bond is just like saving
money from a bank in which you will earn interest from the amount borrowed.
STOCKS BONDS
A form of equity financing or raising money by A form of debt financing, or raising money by
allowing investors to be part owners of the borrowing from investors
company.
Stock prices vary every day. These prices are Investors are guarantee interest payments and a
reported in various media (newspaper, TV, return of their money the maturity date.
internet, etc.
Higher risk but with possibility of higher returns Lower risk but lower yield.
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Can be appropriate for retirees (because of the
Can be appropriate if the investment is for the guaranteed fixed income) or for those who need
long term (10years or more). This can allow the money soon (because they cannot afford to
investors to wait for stock prices to increase if ever take a chance at the stock market)
they go low.
ASSESSMENT
After our lesson, let us check what have you
learned
1. It can be appropriate for retirees (because of the guaranteed fixed income) or for
those who need the money soon.
2. Investors can earn if the security prices increase, but they can lose money if the
security prices decrease od worse, if the company goes bankrupt.
5. Investors are guaranteed interest payments and a return of their money at the
maturity date.
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2. A certain land developer declared a dividend of ₱28 per share for the common
stock. If the common stock is closes at ₱99.00, how large is the stock yield ratio on
this investment?
4. Determine the amount of a semi-annual coupon paid for a 3% bond with a face
value of ₱80,000 which matures after 15 years.
5. A certain financial institution declared ₱57 dividend per share for its common stock.
The market value of the stock is ₱198. Determine the stock yield ratio.
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WHAT’S NEW
LESSON 2
Market Indices for Stock and Bonds
diligently.
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WHAT’S NEW
LESSON 2.1
Market Indices for Stocks and Bonds
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In the table above, the terms mean the following:
➢ Val – value of the index
➢ Chg – change of the index value from the previous trading day (i.e., value today minus
value yesterday)
➢ %Chg – ratio of change of the index (Chg) to Val ( i.e., Chg dibided by Val)
STOCK TABLES
Newspapers or magazine may also report on stock prices of individual companies. The
following table shows how information about stocks can be presented values are
hypothetical).
HI LO
➢ 52 – WK HI/LO – highest/ lowest selling price of the stock in the past 52 weeks
➢ HI/LO – highest/lowest selling price of the stock in the last trading day
➢ STOCK – three-letter symbol the company is using for trading
➢ DIV – dividend per share last year
➢ VOL (100s) – number of shares (in hundreds) traded in the last trading day (In this
case, stock 100 AAA sold 2,050 shares of 100 which is equal to 20,500 shares) ➢ CLOSE
– closing price on the last trading day.
➢ NETCHG – net change between the two last trading days (in the case of AAA, the net
change is 0.10. Tha closing price the day before the last trading is ₱57.29 - ₱0.10 =
₱57.19.)
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BUYING OR SELLING STOCKS
To buy or sell stocks, one may go to the Philippine Stock Exchange (PSE) personally.
However, nowadays are done making a phone call to a registered broker or by logging on
to a reputable online trading platform. Those with accounts in online trading platforms
may often encounter a table like the following:
BID ASK/OFFER
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Philippines, our bond market does not typically compute a bond market index. Instead, the
market rates produced from the bond market are interest rates which may be used as
benchmarks for other financial instruments.
WHAT IS IT…
Activity: Fill in the blanks.
1
1. _______________ the number of individual buy orders and the total number of shares that
wish to buy
2._______________ the measure of the value of a section of the stock market and is
computed from the price of selected stocks.
3. _______________are reported in the business section of magazines or newspapers, as
well as online.
4. To buy or sell stocks, one may go to the ___________________ personally.
5. A financial institution may want to compare its performance with those of others. This can
be done by comparing with the _____________ index.
6. ____________is a share of ownership in a business or company.
7. The market rates produced from the bond market are ___________ rates which may be
used as benchmarks for other financial instruments.
8. The price these buyers are willing to pay for the stock is called _____________.
9. The share in the company’s profit is called _____________.
10. A ______________ is a method of measuring the value of a section of the bond market.
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WHAT I HAVE LEARNED
A Stock Index or Stock Market Index is the measure of the value of a section of the stock
market and is computed from the price of selected stocks. Investors and financial managers use this
One example is the PSE Composite Index or PSEi. It is composed of 30 companies carefully selected to
represent the general movement of market prices. The up and down movement in percent change
Other indices are sector indices, each representing sector (e.g., financial institutions, industrial
The stock index can be a standard by which investors can compare the performance of their stocks.
A financial institutio n may want to compare its performance with those of others. This can be done
by comparing with the “financial” index.
➢ Bid Size – the number of individual buy orders and the total number of shares that wish to
buy
➢ Bid Price – the price these buyers are willing to pay for the stock
➢ Ask Price – the price the sellers of the stock are willing to sell the stock
➢ Ask Size – how many individual sell orders have been placed in the online platform and the
A bond index or bond market index is a method of measuring the value of a section of the bond
market.
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Assessment
After our lesson, let us now check what you have
learned.
Direction: Match the terms in Column A to the
statements in column B.
A B
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REFERENCES:
General Mathematics Book pg. 243-264
REX BOOK STORE
BY: ORLANDO A. ORONCE
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