Discussion 1

Stocks and Bonds

Stocks, or shares, or ownership stake in a company. The total value of all outstanding stock of the
company is the value of a company. The price of a share is the value of the company divided by the
number of shares outstanding. In comparison, Bonds are loans made to an organization. They are a form
of debt and appear as liabilities in the organization. While stocks are usually offered only in for-profit
corporations, any organization can issue bonds.

Stocks indicate the holder has proportionate ownership in the issuing corporation.

An excellent example of stocks is big corporations such as SM Malls, San Miguel Brewery, and Proctor
and Gamble Philippines.

Types of Stocks
Common Stock – giving the owner to vote at shareholder’s meeting and to receive dividends paid out by
the corporation.

Preferred Stock – do not have the right to vote, though they have a more significant claim on assets and
earnings than the common stockholders.

Companies issue stocks to raise capital or shares to grow the business or undertake new projects. There
is also a difference when you buy the shares directly from the company (primary market) or buy from
another stockholder (secondary market).

Definition of terms concerning stocks

Stocks – share in the ownership of a company
Dividend – share in the company’s profit
Dividend Per Share – the ratio of the dividends to the numbers of shares
Stock market - a place the stocks can be bought or sold. The stocks market in the Philippines is governed
by the Philippines stock Exchange (PSE)
Market value - the current price of a stock at which it can be held
Stock Yield Ratio - the ratio of the annual dividend per share and the market value per share. Also called
stock yield
Par Value  - the per-share amount as stated on the company certificate. Unlike the market value, it is
determined by the company and remains stable over time

Example 1:
A particular financial institution declared a 30,000,000 PHP dividend for the common stocks. If there are
700,00 PHP shares of common stocks, how much is the dividend per share?
Solution:
Given: Total dividend = 30,000,000 php
                Total shares = 700,000 php

Find: Dividend per Share

Therefore, the dividend per share is 42.86 PHP

Example 2:
A particular corporation declares a 3% dividend on a stock with a par value of 500 PHP. Mrs. Lingan
owns 200 shares of stock with a par value of 500 PHP. How much is the dividend she received?
Solution:
Given: Dividend percentage = 3%
            Par value = 500 php
Number of shares = 200

Find: Dividend

In summary,

Thus, the dividend is 3,000 PHP

Example 3:
With a current market value of 52 PHP, Corporation A gave a dividend of 8 PHP per share for its common
stock. With a current market value of 95 PHP, Corporation B gave a dividend of 12 PHP per share. Use
the stock yield ratio to measure how much dividends shareholders are getting concerning the amount
invested.
Solution:

 Corporation A  Corporation B

 Given: Dividend per Share = 8 php  Given: Dividend per Share = 12 php

            Market Value = 52 php             Market Value = 95 php

Find: Stock Yield Ratio

=8/52 =12/95

=0.1538 = 0.1263
= 15.38% =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 in Corporation B. if all other things are equal, then it is wiser to invest in
Corporation A

As Example 3 shows, the stock yield ratio can be used to compare to or more investments.

Bonds
is a fixed income instrument that represents a loan made by an investor to a borrower. Also, these are
units of corporate debt issued by companies.

Bond prices are inversely correlated with the interest rates: When the rates go down, bonds prices go up
and vice versa.

Characteristics of Bonds

 Face Value – the amount worth by the bond after the maturity; it is also the initial amount the
bond issuer uses when calculating the payment for interests.

 Coupon Rate – the rate of interest that the bond issuer will pay on the bond's face value, and it
is on percentage.

 Coupon Dates – are the dates where the bond issuer will make interest payments.

 Maturity Date – the bond issuer will pay the date on which the bond will mature and the
bondholder by the face value of the bond.

 Issue Price – is the original price that the bond issuer sells. 

Discussion 2
Stock Market
is a place where investors go to trade equity securities.

This place is where buyers and sellers are gathered together into a fair, regulated, and controlled
environment to perform their trades.

Examples of companies to buy stocks are SM Investment Corporation, Megaworld Corporation, Alliance
Global, 2Go Group Inc., etc.
Bond Market
is a place where investors go to trade debt securities, prominently bonds, which corporations and the
government may issue.

It is also known as the debt or credit market. Securities sold on the bond market are all various forms of
debt. By buying a bond, you lend money for a certain period with interest, just like banks. An excellent
example of a bond is having a bond on a cooperative wherein you invest your money and let other bond
issuers borrow your money with interest.
Market Index
 is a portfolio of investment holdings that represents a segment in the financial market.

The calculation of the indexes has values based on the market-cap weighting, revenue-weighting, float-
weighting, and fundamental-weighting.

Weighting is a method of adjusting the individual impact of items in an index.