BASIC CONCEPTS OF STOCK

AND BONDS

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1 STOCKS
are shares in the ownership of the company

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 TWO TYPES OF STOCKS

COMMON STOCKS PREFERRED STOCKS

Dividends or share of earnings

Certificates with the corporation’s name, owner’s,

number of sharers and par value per share.
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DEFINITION OF TERMS IN RELATION TO STOCKS

Stocks – share the ownership of the company.

Dividend – share in the company’s profit
Dividend Per Share – ratio of the dividends to the number of shares
Stock Market – a place where stocks can be bought or sold. The stock
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 sold.
Stock Yield Ratio – ratio of the annual dividend per share and the market
value per share. Also called current stock yield.
Par Value – the per share amount as stated on the company certificate.
Unlike market value, it is determined by the company and remains stable
over time.
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EXAMPLE 1. A certain financial institution declared a ₱30, 000, 000 dividend for
the common stocks. If there are a total of 700, 000 shares of common stock, how
much is the dividend per share.

Given: Total Dividend = ₱30, 000, 000

Total Shares = 700, 000
Find the dividend per share.

therefore, the dividend per share is ₱42.86

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EXAMPLE 2. A certain corporation declared a 3% dividend on a stock with a par
value of ₱500. Mrs. Lingan own 200 shares of stocks with par value of ₱500. How
much is the dividend she received.

Given: Dividend Percentage = 3% No. of shares = 200

Par Value = ₱500
Find the dividend.
the dividend per share is: ₱500 x 0.03 = ₱15
total dividend is ₱15share x 200 shares = ₱3, 000
Dividend = (Dividend Percentage)(Par Value)(No. of Shares)
= (0.03)(500)(200)
= 3,000
Thus, the dividend is ₱3, 000
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EXAMPLE 3. Corporation A, with s current market value of ₱52, gave a dividend
of ₱8 per share for its common stock. Company B, with a current market value of
₱95, gave a dividend of ₱12 per share. Use the stock yield ratio to measure how
much dividends shareholders are getting in relation to the amount invested.
Given: Given:
Corporation A: Corporation B:
Dividend per share = ₱8 Dividend per share = ₱12
Market Value = ₱52 Market Value = ₱95
Find: stock yield ratio Find: stock yield ratio

= 0.1538 = 0.1263
= 15.38% = 12.63%

Corporation A has a higher stock yield ratio than Corporation B. Thus, each peso will 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. 7
1 BONDS
interest – bearing security which promises to pay

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DEFINITION OF TERMS IN RELATION TO BONDS
Bond – interest – bearing security which promises to pay
(1) is stated amount of money on the maturity date, and
(2) regular interest payments are called coupons.
Coupon – periodic interest payment that the bondholder receives during the
time between purchase date and maturity date; usually received semi-
annually.
Coupon Rate – the rate per coupon payment period, denoted by r
Price of a Bond – the price of a bond at purchase time; denoted by P
Par Value or Face Value - the amount payable o the maturity date; denoted
by F.
If P = F, the bond is purchased at par.
If P < F, the bond is purchased at a discount.
If P > F, the bond is purchased at premium 9
DEFINITION OF TERMS IN RELATION TO BONDS

Term of a Bond – fixed period of time (in verse) at which the bond is
redeemable as stated in the bond certificate; number of years from time of
purchase to maturity date.
Fair Price Bond – Present value of all cash inflows to the bondholder.

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EXAMPLE 1. Determine the amount of the semi – annual coupon for a bond with a
face value of ₱300, 000 that pays 10%, payable semi annually for its coupons.
Given: Face Value F = 300, 000
Coupon Rate r = 10%
Find: Amount of the semi – annual coupon
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 is ₱15, 000.

Note: the coupon rate is used only for computing the coupon amount, usually
paid semi-annually. It is not the rate at which money grows. Instead, current
market conditions are reflected by the market rate and is used to compute the
present value of the future payments.
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MARKET INDICES FOR
STOCKS AND BONDS

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 STOCK MARKET INDEX
A stock market index is a measure of a portion of the stock market.

Example:
One example is the PSE Composite Index or PSEi. It is composed of 30
companies carefully selected to represent the general movement of market
1 prices. The up and down movement in percent change over time can
indicate how the index is performing.

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 Sector indices
indices that representing a particular sector.

Examples:
- Financial Institutions - Service corporations
- industrial corporations - mining/ oil, property
1 - holding firms

The stock index can be a standard by which investors can compare the
performance of their stocks. A financial institution may want to compare its
performance with those others. This can be done by comparing it with the
“financials” index.

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 STOCK TABLES

We will use the headings and the first row of the table to explain each
column and this serves as an example.
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The heading STOCK is a three-letter symbol the company using
for trading. Example AAA

The heading 52-WK-HIGH is the highest selling price of the stock

in the past 52 weeks. The highest price at which AAA stock
traded during the past 52 weeks was ₱94.
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 STOCK TABLES

The heading 52-WK-LOW is the lowest selling price of the stock

in the past 52 weeks. The lowest price at which AAA stock
traded during the past 52 weeks was ₱44

1 The heading HIGH is the highest selling price of the stock on the
last trading day. The selling price of AAA stock in the last
trading day was ₱60
The heading LOW is the lowest selling price of the stock on the
last trading day. The selling price of AAA stock in the last
trading day was ₱35.5
The heading DIV is the dividend per share last year. The dividend
per share last year of AAA stock was 0.70
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 STOCK TABLES

The heading VOL is the number of shares (in hundreds) traded in the
last trading day. In this case, stock AAA sold 2050 shares of 100
which is equal to 205,000 shares

1 The heading CLOSE is the closing price on the last trading days.
The closing price of AAA stock in the last trading day was
₱57.29
The heading NETCHG is the change between the last two trading
days. In the case AAA, the net change is 0.10. The closing
price the day before the last trading day is ₱57.29 – 0.10 =
₱57.19

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 Example
Considering the following listing on stocks and answer the question the follow:

For Stocks GGG

1 1. What was the lowest price of the stock for the last 52 weeks?
2. What was the dividend per share last year?
3. What was the annual percentage yield last year?
4. What was the closing price in the last trading day?
5. What was the closing price the day before the last trading day?

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 Buying or Selling Stocks
To buy or sell stocks, one may go to the PSE personally.

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Bid Size – the number of individual buy orders and the total number of shares
they wish to buy.
Bid Price – the price that buyers are willing to pay for the stocks
Ask Price – the price that the sellers of the stock are willing to sell the stock
Ask Size – how many individual sell orders have been placed in the online
platform and the total number of shares these sellers wish to sell.
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 Buying or Selling Stocks
To buy or sell stocks, one may go to the PSE personally.

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Look at the table above, the first row under Bid means that there are a total of
122 traders who wish to buy a total of 354, 000 shares at ₱21.60 share.
On the other hand, the first row under Ask means that just one trader is willing
to sell his/her 20,000 shares at a price of ₱21.80 per share.

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BOND MARKET INDICES

A bond market index is a measure of a portion of a bond market.

The main platform for bonds or fixed-income securities in the Philippines
is the Philippine Dealing and Exchange Corporation (or PDEx).

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THE BOND MARKET AND GOVERNMENT BONDS

Government bonds are sold out to banks and other brokers and dealers
every Monday by Bureau of Treasury. It depends on their terms (or tenors),
these bond are also called treasury bills (t – bills), treasury notes (t – notes),
or treasury bonds (t – bonds). On the day right after the auction, the news
agencies are normally reported the resulting coupon rates and the total amount
sold for these bonds.

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Example: Rachel owns 2,000 shares of a company A at ₱980 per share. He also
owns 15 000 shares for company B at ₱250 per share. In which company is the total
value of her share greater? Explain how you know which is greater.
Company A
No. of shares x Selling Price = Total Price
2, 000 x ₱980 = ₱1,960,000

Company B
No. of shares x Selling Price = Total Price
15,000 x ₱250 = ₱3,750,000

Therefore, the greater value of her share is in company B with 15,000 at ₱250
per share, its total value is ₱3,750,000.
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