Stocks and Bonds

Prepared By:
Ms. Grace D. Pediongco
At the end of the activity, the students are
expected to:

▪ distinguishes between stocks and bonds;

▪ appreciates the importance of illustrating and
distinguishing between stocks and bonds to real
life scenario;
▪ identifies the different markets for stocks and
bonds;
▪ describes the different markets for stocks
and bonds;
▪ develops appreciation on the importance
of learning the different markets for
stocks and bonds to real life situation;
▪ identifies the different market indices for
stocks and bonds;
▪ analyzes the different markets for stocks
and bonds; and
▪ develops appreciation on the importance
of analyzing the different market indices
for stocks and bonds to real life situation.
 STOCKS: Buying Part Ownership
in a Corporation
When an investor buys shares of stock, he or
she buys part ownership in a corporation. As
such, the value of that corporation's stock
will tend to reflect the earnings experience
of the firm — up during profitable periods
and down during periods of loss.
Generally speaking, the higher the
potential return, the higher the risk. For
example, stock investors expect a
fairly high rate of return because there
is no schedule of repayment and no
stated rate of return like that paid by
fixed-income securities such as bonds.
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 corporation’s
name, owner’s name, number of
shares and par value per share.
Types
of
Stocks
1. Common Stock
This entitles shareholders to share in the
company’s profits through dividends
and/or capital appreciation. Common
stockholders are given the voting rights,
with the number of votes directly related
to the number of shares owned.
2. Preferred Stock
This is considered less volatile than
common stock but typically less
potential for profit. Preferred
stockholders do not have voting
rights but have a greater claim to
the company’s assets.
Example 1:
A certain financial institution declared
₱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?

Given:
Total Dividend = ₱30,000,000.00
Total shares = ₱700,000.00
Solution:

𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 30,000,000

= = 42.86
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒𝑠 700,000

Therefore, the dividend per share

is ₱42.86.
Example 2:
A certain corporation declared a 3% dividend on
a stock with a par value of ₱500.00. Mrs. Lingan
owns 200 shares of stock with a par value of
₱500.00. How much is the dividend she received?

Given:
Dividend Percentage = 3%
Par Value = ₱500
Number of Shares = 200
Solution:
Dividend per share = Par value x Dividend
Percentage

The dividend per share is ₱500.00 x 0.03 = ₱15.00.

Since there are 200 shares, the total dividend is

₱15/share x 200 shares = ₱3,000.00.

Thus, the dividend is ₱3,000.00.

Example 3:
Corporation A, with a current market value
of ₱52.00, gave a dividend of ₱8.00 per
share for its common stock. Corporation B,
with a current market value of ₱95.00, gave
a dividend of ₱12.00 per share. Use the
stock yield ratio to measure how much
dividends shareholders are getting in
relation to the amount invested.
Given:
Corporation A
Dividend per share = ₱8
Market Value = ₱52
Solution:
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock Yield Ratio =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
8
=
52
= 0.1538
= 15.38%
Given:
Corporation B
Dividend per share = ₱12
Market Value: ₱95
Solution:
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock Yield Ratio =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
12
=
95
= 0.1263
= 12.63%
Corporation A has a stock yield ratio
of 15.38% and Corporation B has a
stock yield ratio of 12.63%. Since
Corporation A has higher stock yield
ration than Corporation B, thus, it is
a wiser to invest in Corporation A.
 BONDS: Making a Loan to a Corporation

Bonds represent loans made by investors to

companies and other entities, such as branches
of the government, that have issued the bonds
to attract capital without giving up managing
control. It is an interest-bearing security which
promises to pay amount of money on a certain
maturity date as stated in the bond certificate.
Bondholders do not share in a
company’s profits, rather, they receive
a fixed return on the investment called
the “coupon rate” and is a percentage
of the bond’s original offering price. On
the maturity date, the bondholders will
receive the fix amount of the bond.
Types
of
Bonds
1. Government Bonds
Bills: debt securities maturing in
less than one year
Notes: debt securities maturing in
one to 10 years
Bonds: debt securities maturing in
more than 10 years
2. Municipal Bonds
Municipal Bonds are the next
progression in terms of risk.
Cities don’t go bankrupt that
often, but it can happen. Often,
the return is not taxable.
3. Corporate Bonds
Corporate bonds are characterized
by higher yields because there is a
higher risk of a company defaulting
than a government.
4. Zero-Coupon Bonds
This a type of bond that
makes no coupon payments
but instead is paid at the
maturity of the bond.
Example 4:
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.

Given:
Face Value F = ₱300,000.00
Coupon Rate r = 10%
Solution:
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

for a bond is P15,000.00.
Example 5:
Sonia bought fifty 1,000 ACTS bond at ₱1.03. What
is her total investment in ACTS bonds?

Solution:
Market Price of 1 bond: 1.03 x P1000 = P1,030.00
Total Investment: 1,030 x 50 = P51,500.00

Thus, the amount of Sonia’s total investment is

₱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
bond plus the broker’s commission.
Example 6:
Mr. Tee owns 45 bonds with a par value of
₱1,000.00 each and pays 8 ½ % interest.
What annual income does Mr. Tee get
from these bonds?

Given: Number of bonds = 45

Rate: r = 8 ½% Par Value = 1,000
Solution:
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
= ₱45,000 x 0.085 x 1 = ₱3,825.00

Thus, the annual income for one year is

₱3,825.00