General Mathematics

Stocks and Bonds

Fourth Quarter – Week 4
June 11, 2021
Expectations
At the end of the learning episode, you are expected
to:
1. define stocks and bonds;
2. understand the importance of stocks and bonds;
and
3. solve Problems involving stocks and bonds.
Definition
• Stocks – portion of the company’s ownership which are sold to
investors in order to acquire or increase funds.
• Dividends – share in the company’s profit. If you own stocks of
the company, you will gain profit via dividends.
• Stockholders – the buyers or owners of the stock. There are
two types of stockholders: common and preferred.
• Stock Market – a place where stocks can be bought or sold.
The stock market in the Philippines is governed by the
Philippine Stock Exchange (PSE). Here, the prices of the stocks
changes every day and even within a day.
Definition
• Bonds – a type of long-term investment sold by corporations or
the government wherein the purchaser becomes a lender of the
company. They basically lend money to the company and after a
certain period of time the company will give it back with interest.
• Issuer – the company or government body that sells bonds.
• Coupon – the annual interest that the purchaser gains from the
issuer
• Coupon rate – the yearly rate of interest that the issuer offers to
the bond buyers.
COMPUTATION FOR STOCKS
• Dividend – share of stockholders from the company’s profit
• Market Value – the current price of a stock at which it can be
purchased in the stock market. This changes every day or
within a day.
• Stock Yield Ratio – the quotient of the annual dividend per
share and the market value per share.
• Par Value – it is the per share amount. Conversely to market
value, this is established by the company and it remains the
same over time.
FORMULAS
• Dividend per share = Total dividend / Total shares

• Dividend = (Dividend Percentage) (Par Value) (No. of Shares)

• Stock Yield Ratio = Dividend per share / market Value

Example

1. Find the stock yield ratio if the dividend per share and
market value of the stock is equal to ₱0.7 and ₱5.21,
respectively.
• Stock Yield Ratio = Dividend per share / market Value
• Stock Yield Ratio = 0.7 / 5.21
• Stock Yield Ratio = 0.13 or 13%
• Therefore, the stock yield ratio is equal to 0.13 or 13%.
2. Find the dividend per share if the total dividend is
₱55,000 and the total number of shares in the company is
900.

• Dividend per share = Total dividend / Total shares

• Dividend per share = 55,000 / 900
• Dividend per share = ₱61.11
• Therefore, the dividend per share is equivalent to
₱61.11.
3. Find the dividend if a shareholder owns 150 stocks
with a par value of ₱425 and the dividend percentage is
equal to 2%.

• Dividend = (Dividend Percentage) (Par Value) (No. of

Shares)
• Dividend = (0.02) (425) (150)
• Dividend = ₱1275.00
• Therefore, the dividend the shareholder will receive is
equivalent to ₱1275.
COMPUTATION FOR BONDS
• Price of a bond (P) – it is the cost of the bond in its purchase
time.
• Par Value or Face Value (F) – the amount payable on the
maturity date
• Coupon – interest that bondholder receive during the time
between purchase date and maturity date; it is usually received
semi-annually.
• Coupon Rate (r) – it is like the interest rate per coupon payment
period.
• Term of a Bond – how long (in number of years) is the bond
purchased and redeemed.
FORMULAS

• Annual Amount of Coupon = Face Value (Coupon Rate)

• Coupon Payment = Principal(Interest) / frequency in a year

Example:
1. What is the amount of the semi-annual coupon for a bond
worth ₱30,000 that pays 5% payable semi-annually for its coupon.

• Annual Amount of Coupon = Face Value (Coupon Rate)

• Annual Amount of Coupon = (30,000)(0.05)
• Annual Amount of Coupon = ₱1,500
• Semi-Annual Amount of Coupon = 1,500 / 2
• Semi-Annual Amount of Coupon = ₱750

Therefore, the semi-annual amount of the coupon is ₱750.

Example:
2. Find the coupon payment for a bond amounting to
₱100,000 with a semi-annually compounded interest of 7%.

• Coupon Payment = (Principal) (Interest) / frequency in a

year
• Coupon Payment = (100,000 )(0.07) / 2
• The frequency in a year is equal to 2 because it is
compounded semi-annually or two times a year.
• Coupon Payment = ₱3,500
Therefore, the coupon payment is ₱3,500.
Example:
1) A certain corporation declared to give ₱50,000,000 dividend to common
stockholders. If there are 800,000 shares in the company, how much is the
dividend per share?
I. Given
Dividend = ₱50,000,000
Total number of shares = 800,000
 
II. Working Equation
Dividend per share = Total dividend / Total shares

III. Solution
Dividend per share = 50,000,000 / 800,000
Dividend per share = ₱62.5
 
IV. Conclusion
Therefore, the dividend per share of the stockholders is equal to ₱62.5.
Example:
2) Corporation A, with a current market value of P30 gave a dividend of P3.50
per share for its common stock. Corporation B, with a current market value
of P52, gave a dividend of P8 per share. Assuming all other things remain
constant, in which corporation should you invest?
I. Given III. Solution
Corporation A Corporation A
 Dividend per share = ₱3.50  Stock yield ratio = 3.50 / 30
 Current market value = ₱30 Stock yield ratio = 0.1167 or 11.67%
 Corporation B  Corporation B
 Dividend per share = ₱8  Stock yield ratio = 8 / 52
 Current market value = ₱52  Stock yield ratio = 0.1538 or 15.38%
 
II. Working Equation
 Stock yield ratio = Dividend per share/ current market value
 
IV. Conclusion
Therefore, you should invest at Corporation B because it has a higher stock yield ratio than
Corporation A.
Example:
3) A corporation will get their coupon payment for the half of the year from Ayala
Corporation (AC). The bond has an interest of 5.46% yearly and a semi-annual coupon
payment. The company allotted ₱6,500,000 for the investment. They are hoping for the
coupon payment of ₱150,000 or above. Will the company get what they wish for? 
I. Given
 

Principal = ₱ 6,500,000
Interest: 5.46% or 0.0546
 
n = 2 (the interest is compounded semi-annually or twice a year)
II. Working Equation
Coupon Payment = Principal (Interest) / frequency in a year
III. Solution
Coupon Payment = 6,500,000(0.0546) / 2
Coupon Payment = 6,500,000(0.0546) / 2
Coupon Payment = ₱177,450
 

IV. Conclusion
Therefore, the company has surpassed their expected coupon payment as they have
acquired a coupon payment worth ₱177,450 which is greater than their target coupon
worth ₱150,000.
Exercises
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