Buying and Selling

Stocks
 Read stock listings.
 Calculate and distribute dividends.
Business Math, Eighth Edition © 2009 Pearson Education, Inc. Upper Saddle River, NJ
Cleaves/Hobbs 07458 All Rights Reserved
Key Terms
 Stock: the distribution of ownership of a
corporation. Partial ownership can be
purchased through various stock markets.
 Share: one unit of ownership of a corporation.
 Face value (par value): the value of one share

of stock at the time the company first issued
stock for sale.
Key Terms
 Stock certificate: a certificate of ownership of
stock issued to the buyer.
 Dividend: a portion of the profit of a company
that is periodically distributed to the
stockholders of a company.
 Preferred stock: a type of stock that
guarantees a specific dividend to the
stockholder. The preferred stockholder
does not have voting rights.
Key Terms
 Common stock: a type of stock that gives the
stockholder voting rights. After dividends are
paid to preferred stockholders, the remaining
dividends are distributed among common
stockholders.
 Stock market: the structure for buying and
selling stock.
 Trade: either the buying or selling of a stock.
Key Terms
 Stockbroker: the person who handles the
trading of stock. A stockbroker receives a
commission for these services.
 Stock listings: information about the price of a
share of stock and some historical information
that is published in newspapers and on the
Internet.
 Price-earning (PE) ratio: the ratio of closing
price of a share of stock to the annual earnings
per share.
21.1.1 Read Stock Listings
 In the stock listing in Table 21-1 in your text,
there are fifteen (15) columns across the top of
the page and they identify specific information
related to a particular stock.
 Stock prices are listed in dollars and cents.
 Positive and negative signs show the direction
of the stock: “+0.13” means the stock went up
thirteen cents over the previous day’s price.
 The rows list the stock name in alphabetical
order.
From Table 21-1 identify each
column for ABN Amro Holding
1. Shows the corporation name: ABN Amro Holding
2. Shows the company symbol: ABN
3. Share price when the market opens: $48.60
4., 5. and 6. Show the high, low and close at which
the stock sold this day: high is $49.07; low is
$48.52; close is $48.74.
7: Shows how much this day’s closing price per share
differs from the previous day’s closing price per
share for this stock: net change is $0.29.
Identify each column (cont.)
8. Shows the percentage increase/decrease of
day’s closing price to the opening price: 0.6%
9. Shows the total number of shares that are
traded on this day: 1,598,100 shares
10. and 11. show the high and low price at which
the stock was traded in the last 52 weeks, not
including this day: high $50.83; low $25.43.
12. Shows the dividend paid per share of stock the
previous year: an irregular cash dividend of
$1.48 per share was paid last year. (An e
denotes an irregular cash dividend)
Identify each column (cont.)
13. Yield shows the previous year’s dividend
as a percent of the current price per share:
yield is 3% (If there was no dividend paid the
previous year, the entry is “…”)
14. Shows the stock’s price earnings ratio (PE):
The P/E ratio is unchanged.
15. (YTD% Chg) shows the percentage by which
the closing price differs from the first business
day of the year: the price per share rose 52%.
Look at this table
21.1.2 Calculate and
Distribute Dividends
 Corporation’s board of directors votes to
reinvest any profits into a business or
can declare a dividend with some or all of
the profits.
 Dividend can be expressed as a
percentage of the par value of the shares,
or as a dollar amount per share.
 Usually declared quarterly.
Key Terms
 Participating preferred stock: a type of
preferred stock that allows stockholders to
receive additional dividends if the company
does well.
 Convertible preferred stock: a stock

option that allows the stockholder to
exchange the stock for a certain number of
shares of common stock.
Key Terms
 Cumulative preferred stock: preferred
stock that earns dividends every year.
 Dividends in arrears: dividends that were

not paid in a previous year and must be paid
to cumulative preferred stockholders before
dividends can be distributed to other
stockholders.
How to calculate
and distribute dividends
1. First pay dividends in arrears:

a) Multiply the number of shares held by
preferred stockholders by the given rate,
expressed as dollars per share.
b) Subtract those dividends in arrears from
the available amount of money
(continued next slide)
Calculate and distribute dividends
2. Pay the present year’s preferred stock
dividends:
a) Multiply the number of preferred shares held
by stockholders by the given rate.
b) Subtract these preferred stock dividends
from the difference from step 1b.
(continued on next slide)
Finally…
3. Pay the common stock dividend:
Divide the difference from step 2b by the
number of common shares held by
stockholders. This is the dividend per share
paid to common stockholders.
Look at this example
Your company has issued 20,000 shares of
cumulative preferred stock that will earn
dividends at $0.60 per share, and 100,000
shares of common stock. Last year, you
paid no dividends. This year, $250,000 is
available for dividends. How are the
dividends to be distributed?
(next slide)
Pay the stockholders
1. Pay last year’s dividends in arrears: 20,000 x
$0.60 = $12,000 (to preferred stockholders)
2. Pay preferred stockholders for this year:
20,000 x $0.60 = $12,000
3. The remaining amount ($226,000) is divided
among the 100,000 shares of common stock
yielding a payout of $2.26 per share.
Preferred stockholders receive $24,000 and

common stockholders receive $226,000.
Try this example
The Puffer Fish Company has issued 10,000
shares of cumulative preferred stock that will
earn dividends of $0.80 per share and 50,000
shares of common stock. Last year they paid no
dividends. This year $100,000 is available for
dividends. How are the dividends to be
distributed?
Preferred stockholders will receive $16,000 &
common stockholders will receive $84,000, at
$1.68 per share.
21.2. Bonds and Mutual Funds
 Read bond listings.
 Calculate the price of bonds.
 Read mutual fund listings.
Key Terms
 Bond: a type of loan to the issuer to raise
money for a company or municipality. The
investor or bondholder will be paid a specified
rate of interest each year and will be paid the
entire value of the bond at maturity.
 Face value (par value): the original value of a
bond, usually $1,000.
 Maturity date: the date at which the face value
of the bond is paid to the bondholder.
Key Terms
 Junk bonds: high-risk bonds that are usually
from companies in bankruptcy or in financial
difficulty.
 Corporate bonds: bonds issued by a

business.
 Municipal bonds: bonds issued by local and

state governments.
 Treasury bonds: bonds issued by the federal

government.
Key Terms
 Coupon bonds: bonds that require the
investor to submit a coupon at a specified time
to receive interest.
 Registered bonds: investors receive interest
automatically by being listed with the company.
 Convertible bonds: bonds with a provision for
being converted to stock.
 Callable bonds: bonds that can be
repurchased by the company before the
maturity date.
Key Terms
 Bond market: the structure for buying and

selling bonds.
 Premium bond: a bond that sells for more
than the face value.
 Discount bond: a bond that sells for less
than the face value.
21.2.1 Read Bond Listings
 There is less activity in the bond market, so
prices are given weekly.
 CLS: closing price
 100% means bonds selling at par value
 Discount bonds have a listing of less than
100%
 Premium bonds have a listing of greater than
100%
How to read bond listings
 There are nine columns in all.
 Columns 1 and 2 give the high and low values
over the past twelve months.
 Column 3 tells the name of the issuing
company, the annual interest rate (expressed
as percent of face value) and the last two digits
of the year of maturity.
 Column 4 (Cur Yld) tells the current yield which
is the ratio of the annual interest earned per
bond and the current price per bond.
Read bond listings (cont.)
 Column 5 (Sales) tells the amount of sales in
$1,000’s.
 Columns 6 and 7 give the weekly high and low
values.
 Column 8 (Weekly Last) tells the closing price
per bond as a percent of the face value per
bond.
 Column 9 (Net Change) tells how much this
week’s closing price per bond differs from the
previous week’s closing price per bond.
Table 21-2
21.2.2 Calculate
the Price of Bonds
 Locate the percent of $1,000 that the bond
was selling for at the close of the week
(column 8).
 Multiply the decimal equivalent of the

percent by $1,000.
 Round the product to the nearest cent.
Key Terms
 Yield: a measure of the profitability of the

investment.
 Current bond yield or average bond yield:

the annual interest per bond to the current
price per bond.
 Calculate the closing price of PhilPt bond.
 From column 8, the closing price as a

percent of face value was 103.13% which
is equal to 1.0313.
 Closing bond price = $1,000 x 1.0313
 The closing bond price is $1,031.30

21.2.3 Read
Mutual Fund Listings
1. Find the appropriate fund family
(bold entry in column 1).
2. Find the appropriate fund name
(indented entry in column 1).
3. Find the mutual fund symbol in column 2.
4. Find the net asset value (NAV) in column 3.
5. Identify the one-day total change
(Chg) from column 4.
6. Identify the total return for the year to date
(YTD % Ret) from Column 5.
Key Terms
 Portfolio: a variety of types of investments
 Mutual fund or investment trust: a collection

of stocks, bonds, and other securities that is
managed by a mutual fund company
 Net asset value: the value of one share of the

fund. This value fluctuates just as the value of
stocks and bonds fluctuates.
Find the (a) current price per share of LCEDX
fund. What was (b) the price per share
yesterday?
(a) current price per share = $14.09 (NAV)
(b) yesterday’s price = $14.09 - $0.05
= $14.04
 Yesterday’s price per share was $14.04.
How to find the NAV at the beginning
of the year for a mutual fund
1. Divide the current NAV by the sum of:

100% and YTD% return.
Beginning of year NAV = current NAV
100% + YTD% return
2. Round the quotient to the nearest cent.
Using Table 21-3, find the beginning of year
NAV for AWSBX.
Beginning of year NAV = current NAV
100% + YTD%
Beginning of year NAV = 16.48

1.048
 The beginning of year NAV = $15.73.

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Stocks

 Read stock listings.

 Calculate and distribute dividends.

 Share: one unit of ownership of a corporation.

 Face value (par value): the value of one share

 Convertible preferred stock: a stock

 Dividends in arrears: dividends that were

1. First pay dividends in arrears:

(continued on next slide)

Preferred stockholders receive $24,000 and

 Read bond listings.

 Calculate the price of bonds.

 Read mutual fund listings.

 Corporate bonds: bonds issued by a

 Municipal bonds: bonds issued by local and

 Treasury bonds: bonds issued by the federal

 Bond market: the structure for buying and

 Multiply the decimal equivalent of the

 Round the product to the nearest cent.

 Yield: a measure of the profitability of the

 Current bond yield or average bond yield:

 Calculate the closing price of PhilPt bond.

 From column 8, the closing price as a

 Closing bond price = $1,000 x 1.0313

 The closing bond price is $1,031.30

 Mutual fund or investment trust: a collection

 Net asset value: the value of one share of the

1. Divide the current NAV by the sum of:

Beginning of year NAV = 16.48

 The beginning of year NAV = $15.73.

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