STOCKS AND BONDS

W H AT A R E S T O C K S ?
Stocks or shares are units of equity or ownership in a company.
You can be considered a stockholder or shareholder if you buy shares
of stocks of a company. They become legal part owners of the company.
As an owner, the stockholder is eligible to receive a dividend or a share
of the company’s profits. The amount of this dividend may change from
year to year depending on the company’s performance. Stockholders
carry a certificate of ownership called stock certificate which is a
document that shows the company’s name, the person’s name, the
number of shares owned or bought, the certificate number and the par
value. The value of the stock printed in the certificate is called the par
value. Some corporations issue stock without giving the shares nay value.
This stock is called no-par stock.
 TWO TYPES OF STOCKS
Common Stocks
• the payment and size of the dividends is determined by the board of directors of the
issuing firm. The dividend varies according to the company’s performance. If the
company does well, it will pay sizable dividend. Stockholders may vote for the
company’s directors and attend annual stockholders’ meetings.
Preferred Stocks
• the dividends are paid according to fixed periodic rate. Owners of the preferred stocks
do not have voting rights or the right to attend stockholders’ meetings.

Common stockholders have the lowest priority in terms of any cash distribution. If the business
goes out, dividends are paid first to preferred stockholders before they can be paid to
common stockholders.
 W H AT A R E B O N D S ?

Bonds are certificates that promise to pay a fixed rate of

interest by a corporation or government at the end of certain
time. A bond is a certificate of debt whose repayment has been
agreed upon by both the borrower and lender. A person who
buys a bond is called bondholder, is not buying ownership in
a company but is lending the company a money. Unlike a
stockholder, a bondholder is not involved in running a
business, does not vote in the institution’s annual meeting but
first to claim in the institutions earnings.
 W H AT A R E B O N D S ?

Bonds can also be referred to as bills, notes, debt

securities or debt obligations. Each bond issued to investors
will contain the following information detailing the borrower’s
obligation in the transaction. The face value or principal of
the bond is the amount of money transferred from lender to
borrower when bond is first issued. Maturity date is the day by
which the borrower must repay the bond’s principal in full.
Coupon is a term for the interest that the bond issuer will
return to the purchaser as a percentage of the principal.
 T W O K I N D S O F VA L U E S
• Par Value
• is the same as its face value. This is the amount printed on the face of the
bond which the borrower promises to pay the bond holder on the due
date.
• Market Value
• is the price at which the bond is being sold. If the market value is greater
than the par value, then the bond is selling at a premium. On the other
hand, if the market value is less than the par value, then the bond is selling
at a discount.
• When bonds are bought and sold through a broker, the broker charges a
broker’s commission or brokerage fee. Hence the amount of investment
becomes the market price of the bonds plus the broker’s commission.
A XZIEY Company declared a
Php 20,000,000.00 dividend for
the common stocks. If there are
total of 500 000 shares of Solution:
common stocks, how much is the Dividend per Share =
Total Dividend
Total Shares
dividend per share?
20 000 000
Given: Dividend per Share =
500 000
Total Dividend = P 20,000,000.00
Dividend per Share = 40
Total Shares = 500,000
Find: Dividend per Share
Corporation ANNE declared a Solution:
6.5% dividend on a stock with a The dividend per share is :
par value of Php 300.00. Mrs. Star 300 x 0.065 = Php 19.50.
owns 100 shares of stocks. How Total dividend is:
much is the dividend she 19.5/share x 100 shares =P
received? 1,950.00
Given: Dividend = (Dividend
Percentage)x(Par Value)x(No. of
Dividend Percentage = 6.5%
Shares)
Par Value = Php 300.00 = (0.065)(300)(100)
Number of Shares = 100 = Php 1950.00

Find: Dividend Thus, the dividend is Php 1950.00.

Corporation TALIE, with a current
market value of Php 135.00, gave Corporation TALIE
a dividend of Php 20.00 per Dividend per share = Php 20.00
share for its common stock. Market Value = Php 135.00
Corporation TALYANG, with a Find: stock yield ratio
current market value of Php
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠h𝑎𝑟𝑒
105.00, gave a dividend of Php stock yield ratio = 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
15.00 per share. Use the stock 20
stock yield ratio =
yield ratio to measure how much 135
dividends shareholders are stock yield ratio =0.1481 or
getting in relation to the amount 14.81%
invested.
Corporation TALIE, with a current
market value of Php 135.00, gave Corporation TALYANG
a dividend of Php 20.00 per Dividend per share = Php 15
share for its common stock. Market Value = Php 105.00
Corporation TALYANG, with a Find: stock yield ratio
current market value of Php
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠h𝑎𝑟𝑒
105.00, gave a dividend of Php stock yield ratio = 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
15.00 per share. Use the stock 15
stock yield ratio =
yield ratio to measure how much 105
dividends shareholders are
stock yield ratio = 0.1429 or
getting in relation to the amount 14.29%
invested.
Corporation TALIE, with a current
market value of Php 135.00, gave a
dividend of Php 20.00 per share for
its common stock. Corporation Thus, Corporation TALIE has a
TALYANG, with a current market higher stock yield ratio than
value of Php 105.00, gave a Corporation TALYANG. Thus, each
dividend of Php 15.00 per share. peso would earn you more if you
Use invest in Corporation TALIE than in
Corporation TALYANG. If all other
the stock yield ratio to measure how things are equal, then it is wiser to
much dividends shareholders are invest in Corporation TALIE.
getting in
relation to the amount invested.
Determine the amount of the
semi-annual coupon for a bond Solution:
with a face value of Php Annual coupon amount =
550,000.00 that pays 15.3% 550,000(0.153) = Php 84,150.00.
payable semiannually for its
coupon. Semi-annual coupon amount =
30,000(½) = 42 075
Given:
Face Value F = Php 550,000.00 Thus, the amount of the semi-
annual coupon is Php 42,075.00.
Coupon Rate r = 15.3%
Find: Amount of the semi-annual
coupo
Suppose that a bond has a face value
of Php 125,000.00 and its maturity
date is 20 years from now. The coupon
rate is 6% payable semi-annually. Find Solution:
the fair price of this bond, assuming Amount of Semi-annual coupon:
that the annual market rate is 3%. .06
125,000( ) = 3, 750
Given:
2
Coupon rate r = 6% Thus, the bondholder receives 40
Face Value = Php 125,000.00 payments of Php 3,750.00 each
Time to Maturity = 20 years and Php 125,000.00 at t=20.
Number of Periods = 2(20) = 40
Market Rate = 3
QUIZ #4.1
Identification. Identify the parts of a Stock/Bond Certificate. Write your answers on ¼
sheet of yellow paper