ACTIVITY 11: On Stocks and Bonds

(General Mathematics)
Answers ans Solutions

1. Peter received P 75,000.00 as dividend of a stock with a par value of P 600.00. If the dividend
percentage is 5%, how many shares did Peter owned?
Solution. Let s be the number od shares owned by Peter. The dividend per share is 5%(600) =
P 30.00. This means that 30s = 75, 000 ⇔ s = 2, 500. Therefore, Peter owned 2,500 shares.

2. A company delivered a 3.5% dividend on a stock with a par value of P 800.00. If Mae received
P 1,400.00 for owning 8% of the total number of shares, how many shares did Mae actually
owned?
Solution. Let t be the total number of shares. The dividend per share is 3, 5%(800) = P 28.
This means that 28(8%)t = 1, 400 ⇔ t = 625. So, Mae owned 50 shares out of the total 625
shares.

3. Find the price for a 7.5% coupon bond with a par value of P 1,000.00, 30 years to maturity
and required rate of return is 9%.
Solution. The number of semi-annual periods is (30)(2) = 60 ; semi-annual interest,
C = 1000(7.5%)
2
= P 37.50, and semi-annual required rate is 4.5%. The price of the bond B is

 1 − (1 + j)−n  F
B=C +
j (1 + j)n
 1 − (1 + .045)−60  1000
= 37.5 +
0.045 (1 + 0.045)60
= P 845.21

4. Find the price for a 7.5% coupon bond with a par value of P 1,000.00, 10 years to maturity
and a market value of 6%.
Solution. The number of semi-annual periods is (10)(2) = 20 ; semi-annual interest,
C = 1000(7.5%)
2
= P 37.50, and semi-annual required rate is 3%. The price of the bond B is

 1 − (1 + j)−n  F
B=C +
j (1 + j)n
−20
 1 − (1 + .03)  1000
= 37.5 +
0.03 (1 + 0.03)20
= P 1, 111.58
5. Ten years ago, you purchased a 30-yr 9% coupon bond. At that time, the market rate of
interest was 6, 5%. Assume the par value of P 100,000.00.
a. What are the cash flows delivered by this bond? You may use a timeline to illustrate your
answers.
b. Determine the value of the bond today?
Solution.
a. The coupon cash flow is P 4,500.00.
(.09)(100, 000)
Coupon = = P 45, 000.00
2
This means that the bondholder receives P 4,500.00 every six months for 30 years.
The face value is P 100,000.00 to be delivered on the 30th year.
b. Since the bond was purchased 10 years ago, it had 30 years to maturity. Now, there are
20 years remaining to maturity. So we have:
The number of semi-annual periods is (20)(2) = 40 ;
semi-annual interest, C = 100000(9%)
2
= P 4, 500, and
semi-annual required rate is 3.25%.
The price of the bond B is

 1 − (1 + j)−n  F
B=C +
j (1 + j)n
 1 − (1 + .0325)−40  100000
= 4, 500 +
0.0325 (1 + 0.0325)40
= P 127, 760.54
6. Fifteen years ago, you purchased a 30-yr 9% coupon bond. At that time, the market rate of
interest was 6, 5%. Assume the par value of P 100,000.00.
a. What are the cash flows delivered by this bond? You may use a timeline to illustrate your
answers.
b. Determine the value of the bond today?
Solution.
a. The coupon cash flow is P 4,500.00.
(.09)(100, 000)
Coupon = = P 4, 500.00
2
This means that the bondholder receives P 4,500.00 every six months for 30 years.
The face value is P 100,000.00 to be delivered on the 30th year.
b. Since the bond was purchased 15 years ago, it had 30 years to maturity. Now, there are
15 years remaining to maturity. So we have:
The number of semi-annual periods is (15)(2) = 30 ;
semi-annual interest, C = 100000(9%)
2
= P 4, 500, and
semi-annual required rate is 3.25%.
The price of the bond B is

 1 − (1 + j)−n  F
B=C +
j (1 + j)n
 1 − (1 + .0325)−30  100000
= 4, 500 +
0.0325 (1 + 0.0325)30
= P 123, 727.40
7. Suppose that a bond which will reach maturity in 7 years is priced at P 850.00 with a face
value of P 1,000.00. Calculate the yield to maturity if the coupon rate of the bond is 15%.
Solution. The approximate yield to maturity of the bond is
F −B
C+ n
Y ≈ F +B
2
150 + 1000−850
7
≈ 1000+850 = 18.53%
2

8. Suppose that a bond which will reach maturity in 8 years is priced at P 950.00 with a face
value of P 1,000.00. Calculate the yield to maturity if the coupon rate of the bond is 15%.
Solution. The approximate yield to maturity of the bond is
F −B
C+ n
Y ≈ F +B
2
150 + 1000−950
8
≈ 1000+950 = 16%
2

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