General

Mathematics
LAS, Week 5 – Quarter 2
I. Stocks and Bonds

Content Standards: The learners demonstrate understanding

of basic concepts of stocks and bonds.

Performance Standards: The learners should be able to use

appropriate financial instruments involving stocks
and bonds in formulating conclusions and making
decisions.

Most Essential Learning Competency:

Illustrates stocks and bonds. M11GM-IIe-1
Distinguishes between stocks and bonds. M11GM-IIe-2
Describes the different markets for stocks and bonds.
M11GM-IIe-3
Analyzes the different market indices for stocks and bonds.
M11GM-IIe-4

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II. CONCEPT NOTES

WHAT ARE STOCKS?

Companies sell shares of ownership in their company to raise money to
finance operations, plan expansion, and so on. These ownership shares are
called stocks. The buyers of the stock (stockholders) receive stock certificates
verifying the number of shares of stocks they own. The two basic types of
stocks are common stock and preferred stock.

• Common Stock
Majority of stocks are issued this way. Common stock represents
ownership on a company and is sometimes accompanied by dividends on a
portion of profits. Investors get one vote for every share to elect board
members who oversee management.
• Preferred Stock
Preferred stock represents ownership in a company but does not usually
come with voting rights. However, investors are normally guaranteed
dividends as long as the investor holds ownership of shares. Also, in the event
of liquidation, preferred shareholders are paid off before the common
shareholders.
Common stockholders have voting rights. Preferred stockholders do not
have voting rights, but they receive preference over common stockholders in
dividends (payments from profit) and the company’s assets if the company
goes bankrupt. Stock Market provides an orderly trading place for stock
wherein prices or market value vary from day to day and within a day. Only
stockbrokers who specializes in work in the stock market are allowed to trade
on the floor. The broker receives a commission for the services of both buying
and selling stocks.

Stocks can be bought or sold at its current price called the market
value. When a person buys some shares, the person becomes a stockholder
and receives a certificate with the corporation’s name, owner’s name, number
of shares and par value per share.

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Definition of Terms in Relation to Stocks
• Stocks - share in the ownership of a 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 Philippine 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.

Illustrative Examples for Stocks

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 Number of Shares = 700,000
Find: Dividend per Share

Solution.

𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Dividend per Share = (Formula for dividend per share)
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒𝑠
30,000,000
= 700,000
(Divide)

= ₱42.86
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. Mrs. Lingan owns 200 shares of stock with a par value
of ₱ 500. How much is the dividend she received?
Given: Dividend Percentage = 3% or 0.03
Par Value = ₱500
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 Number of Shares = 200
Find: Dividend

Solution.

The dividend per share given the dividend percentage is equal to Par Value
multiplied to the dividend percentage:
(₱500) (0.03)= P15.00
Since Mrs. Lingan owns 200 shares, the total dividend is dividend per share
multiplied to the number of shares:
₱15.00 x 200 shares = P3,000
In summary,

Dividend = (Dividend Percentage) ⋅ (Par Value) ⋅ (Number of Shares)

= (0.03) (₱500) (200) = 3,000
Thus, the dividend is P3,000.

Example 3. Corporation A, with a current market value of ₱52, gave a

dividend of ₱8 per share for its common stock. Corporation 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 of ₱12 per share. Use the stock yield
ratio to measure how much dividends shareholders are getting in relation to
the amount invested.
Solution.
Given: Corporation A:
Dividend per share = ₱8
Market value = ₱52
Find: stock yield ratio
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock yield ratio = (Formula for Stock yield ratio)
𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
8
= 52 (Divide)

Stock yield ratio = 0.1538 𝑜𝑟 15.38%

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 Corporation B:
Dividend per share = ₱12
Market value = ₱95
Find: stock yield ratio
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock yield ratio = (Formula for Stock yield ratio)
𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
12
= 95 (Divide)

Stock yield ratio = 0.1263 𝑜𝑟 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.
As Example 3 shows, the stock yield ratio can be used to compare two or
more investments.

WHAT ARE BONDS?

Sometimes companies raise money by selling bonds instead of stock.
When you buy a stock, you become a part-owner in the company. To raise
money, companies may not want to sell more stocks and thus dilute the
ownership of their current stock owners, so they sell bonds. A bond is a form
of long-term investment issued by a corporation or government where the
purchaser becomes a creditor of the company. It represents a promise from
the company to pay the face amount to the bond owner at a future date, along
with interest payments at a stated rate. The company, state or municipality
that issues the bond is called the issuer.
The annual interest paid by the issuer to the lender (bond holder) on the
bond is referred to as the coupon. The coupon rate is the annual payout as
percentage of the bond’s par value. Bonds have two kinds of values. These
are par value and market value. The par value of the bond is the same as its
face value while the market value of a bond is the price at which the bond is
being sold. It may be greater than or less than the amount of the par value.
If the market value is greater than the par value, then the bond is selling at
a premium. If the market value is less than the par value, then the bond is
selling at a discount.

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Definition of Terms in Relation to Bonds
• Bonds - interest-bearing security which promises to pay (1) a stated
amount of money on the maturity date, and (2) regular interest
payments called coupons.
Types of Bonds
❖ Government Bonds
These are bonds issued by governments to fund programs, meet
payrolls, and pay their bills.
❖ Corporate Bonds
These are bonds issued by businesses to help them pay expenses.
Although these pose a higher risk than government bonds,
businesses still can earn a lot more in corporate bonds.
❖ Zero-coupon Bonds
These bonds make no coupon payments but instead are issued at a
considerable discount to par value.

• 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 P
• Par Value or Face Value - the amount payable on the maturity date;
denoted by F.

• Terms of Bond - fixed period of time (in years) at which the bond is
redeemable as stated in the bond certificate, number of years from
time of purchase to maturity date.

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 • Fair Price of a Bond - present value of all cash inflows to the
bondholder.

Illustrative Examples for Bonds

Example 4. 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% or 0.10 Find:

Amount of the semi-annual coupon

Solution.

The annual coupon amount is: ₱300,000 (0.10) = P30,000

So, the semi-annual coupon is half of ₱30,000 which is ₱
Thus, the amount of the semi-annual coupon is ₱15,000.

Example 5. Suppose that a bond has a face value of ₱100,000 and its
maturity date is 10 years from now. The coupon rate is 5% payable semi-
annually. Find the fair price of this bond, assuming that the annual market
rate is 4%.
Given: Coupon rate r = 5% or 0.05, payable semi-annually
Face Value = ₱100,000
Time to maturity = 10 years
Number of periods = 2 (10) = 20 because it is paying semi-annually for 10
years
Market rate = 4% or 0.04
Find: Fair Price
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Solution.

The amount of semi-annual coupon is ₱ .

The bondholder receives 20 payments of ₱2,500 each so, a total of
₱100,000 At t = 10 the Present value of ₱100,000:

(formula for Present Value)

Present value of 20 payments of ₱2,500 each:
(Convert 4% to equivalent semi-annual rate)

Price = 67,556.42 + 40956.01 = ₱108,512.43

Thus, a price of ₱108,512.43 is equivalent to all future payments,
assuming an annual market rate of 4%.

Investors are always told to diversify their portfolios between stocks and
bonds, but what’s the difference between the two types of investments? Here's
a look at the difference between stocks and bonds on the most fundamental
level.

Basis for
Stocks Bonds
Comparison
A form of equity A form of debt
instrument or raising instrument or raising of
money by allowing money by borrowing
Definition
investors to be part from investors.
owners of the
company.
Government
Issuers Corporates Institutions,
Financial

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 Institutions,
Companies etc.
Status of Shareholders are the Bondholders are the
Holders owners of the lenders to the company.
company.
Profits earned by the Interest payments are
Form of company made in the form of
Returns are paid in the form of Coupon Payments.
Dividends.
High since it depends Relatively low since
upon the performance bondholders are
Risk Level
of the issuer, so no prioritized for
guaranteed returns. repayments.
Major Risks Market Risk, Business Interest Rate Risk,
Associated Risk Inflation Risk
Shareholders get the Bondholders get the
Additional right to vote. preference in terms of
Benefit repayment and also on
liquidation.
When interest rates When market interest
have fallen rates decrease, the
Market
significantly, the market value of an
Value
market stock value existing bond increases.
rises.

Market Indices for Stocks and Bonds

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

a form of long – term investment issued by a corporation or government
where the purchaser becomes a creditor of the company. A bondholder is
the one who holds a corporation or government bond.

The main platform for bonds or fixed-income securities in the Philippines is

the Philippine Dealing and Exchange Corporation (or PDEx). Unlike stock
indices that are associated with virtually every stock market in the world,
bond market indices are far less common. Other than certain regional bond
indices that have subindices covering the Philippines, our bond market does
not typically compute a bond market index. Instead, the market rates
produced from the bond market are interest rates that may be used as
benchmarks for other financial instruments.

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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
bonds 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.
Since these bond transactions involve large amounts, these bonds are
usually limited to banks, insurance firms, and other financial institutions.
The banks may then resell these bonds to their investors.

Although the coupon rate for bonds is fixed, bond prices fluctuate because
they are traded among investors in what is called the secondary market.
These prices are determined by supply and demand, the prevailing interest
rates, as well as other market forces. As the price of the bond may increase
or decrease, some investors may choose to sell back to banks the bonds they
acquired before their maturity to cash in their gains even before maturity.

Though bond investing is considered safer than stock investing, there is still
some risk involved. The most extreme scenario is a default by the issuer. In
this case, the investor can lose not only the coupons but even the money
invested in the bond. Bond investors should thus be aware of the financial
condition of the issuer of the bond and prevailing market conditions.

Example.

Consider the stock for FFF and GGG to answer the questions that follow.

52WK 52WK VOL NET

HIGH LOW STOCK HIGH LOW DIV YLD % CLOSE
(100s) CHG

75 69 FFF 71.00 67.90 3.50 2.5 190 72.30 0.30

118 100 GGG 115.20 114.30 1.40 3.1 10500 115.00 -0.10

For stocks FFF and GGG answer item 1-6

1. Give the highest and lowest prices for the past 52 weeks.
2. Give the highest and lowest prices for AAA shares yesterday.
3. What was the dividend per share last year?
4. What was the annual percentage yield last year?
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 5. What was the closing price in the last trading day?
6. What was the closing price the day before the last trading day?
7. During the past 52 weeks, which stocks in the table sold at the highest
price?
At the lowest price?
8. How many shares of GGG were traded?
9. Which stocks have the lowest shares were traded for the day? Answers:
For Stock FFF:

1. 52-WK-HIGH = ₱75
52-WK-HIGH = ₱69
2. Highest Price = ₱71
Lowest Price = ₱67.90
3. Dividend per share = ₱3.50
4. YLD% = 2.5%
5. Closing Price = ₱72.30
6. Closing Price (the day before the last trading day) = ₱72.30 - ₱0.30 =
₱72

For Stock GGG:

1. 52-WK-HIGH = ₱118
52-WK-HIGH = ₱100
2. Highest Price = ₱115.20 Lowest Price = ₱114.30
3. Dividend per share = ₱1.40
4. YLD% = 3.1%
5. Closing Price = ₱72.30
6. Closing Price (the day before the last trading day) = ₱115.00 + ₱0.10 =
₱115.10
7. During the past 52 weeks, the GGG stock sold at the highest price ₱118
and FFF stock sold at the lowest price ₱75.
8. The total shares were traded of look under the heading volume,
referring to sales volume and the number given was 10,500. In this case
stock GGG sold 10,500 shares of 100 which is equal to 1,050,000
shares.
9. The FFF stock has the lowest shares were traded with 190 shares of
100 which is equal to 19,000 shares.

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III. LEARNING TASKS
Follow the directions of each given task. Read and understand each
item carefully and answer honestly.
Learning Task 1

Direction: Consider the stock for the first company to answer the questions
that follow.

52- 52WK VOL NET

STOCK HIGH LOW DIV YL D% CLOSE
WKHIGH LOW (100s) CHG

74.30 68.00 HHH 70.00 69.50 .70 9050 2.6 70.25 0.10
115.00 82.00 III 113.90 112.30 .30 10700 2.5 113.30 -0.20
88.00 84.50 JJJ 87.55 83.50 .50 500 3.1 87.50 0.20
57.19 35.80 KKK 56.00 54.20 .28 10200 4.2 56.20 -0.15
31.60 23.25 LLL 30.00 27.80 1.70 1500 2.0 30.00 0.30

1. Give the highest and lowest prices for the past 52 weeks.
2. Give the highest and lowest prices for shares yesterday.
3. What was the dividend per share last year?
4. What was the annual percentage yield last year?
5. What was the closing price on the last trading day?
6. What was the closing price the day before the last trading day?

B. Use the stock table above to answer the following questions.

7. During the past 52 weeks, which stocks in the table sold at the highest
price? At the lowest price?
8. How many shares of GGG were traded?
9. Which stocks have the lowest shares were traded for the day?
10. Which stocks have the highest shares were traded for the day?

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Learning Task 2
Multiple Choice: Choose the letter of the letter of the correct answer.
Show all necessary solutions.
1. What is represented by this situation: Jade had bought 5000 shares in a
fast-food chain company that are currently selling 200,000 shares.
A. bonds B. dividend C. market D. stocks
2. Which do you think Elena invested if Elena put her money to an
investment and her money will be used as a capital for a lending company
where she can receive a regular interest payment?
A. bonds B. dividend C. market D. stocks
3. Which is a form of debt financing or raising money by borrowing from
investors?
A. bonds B. dividend C. market D. stocks
4. A certain investor wishes to have a piece of ownership from a bottling
company, which would he invest?
A. bonds B. dividend C. coupon D. stocks
5. Complete: Dividend is for Stocks and __________ is for Bonds.
A. bonds B. dividend C. coupon D. stocks
6. What do you call the periodic interest payment that the bondholder
receives during the time between purchase date and maturity date; usually
received semi-annually?
A. bonds B. dividend C. coupon D. stocks
7. Which of the following is NOT a characteristic of bonds?
A. It is a form of equity financing or raising money by allowing investors to
be part owners of the company.
B. Investors are guaranteed interest payments and a return of their money
at the maturity date.
C. It can be appropriate for retirees because of the guaranteed fixed income
or for those who need the money soon.
D. It is form of debt financing or raising money by borrowing form investors.
8. A food corporation declared a dividend of ₱25,000,000 for its common
stock. Suppose there are 180,000 shares of common stock, how much is
the dividend per share?
A. ₱250.45 B. ₱190.50 C. ₱138.89 D. ₱98.79
9. A certain financial institution declared Php 57 dividend per share for its
common stock. The market value of the stock is Php 198. Determine the
stock yield ratio.
A. 28.79% B. 29.79% C. 30.79% D. 31.79%
10. A certain land developer declared a dividend of php 28 per share for the
common stock. If the common stock closes at Php 99, how large is the stock
yield ratio on this investment?

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A. 32.01% B. 30% C. 29.81% D. 28.28%
11. What is another term for stock?
A. bond C. debt instrument
B. debenture D. equity instrument
12. It is a type of stock for which stockholders get first choice in distributed
profits.
A. common stock C. face value stock
B. stock market D. preferred stock
13. Another term for a bond’s face value.
A. coupon C. maturity
B. final payment D. par value
14. A bond that pays all of its interest and principal at the bond’s maturity
date.
A. bond fund C. par-value fund
B. coupon bond D. zero-coupon bond
15. Which financial assets carries the most risk?
A. bond C. savings deposits
B. checking deposits D. stock

Learning Task 3
Create a Venn Diagram on the comparison of Stocks and Bonds.

Stocks Bonds

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IV. REFLECTION

Direction: Write your response in at least 5 sentences.

I have learned that

________________________________________________________________

V. REFERENCES

Chen, James. 2020. Investopedia. September 2. Accessed October 21, 2020.

https://www.investopedia.com/terms/i/investment.asp.
Quipper Limited. 2020. Quipper. 09 04. Accessed July 3, 2020.
https://link.quipper.com/en/organizations/5468ba0b2294ee085c000098/curric
ulum#curriculum.
Commission on Higher Education. 2016. Chapter 8: Basic Concepts on Stocks and
Bonds.In Teaching Guide for Senior High School General Mathematics Core Subject,
by Commission on Higher Education, 237-242. Quezon City: Commission on
Higher Education.
Department of Education. 2016. "Lesson 31 Stocks and Bonds; Lesson 32 Market
Indices for Stocks and Bonds; Lesson 33 Theory of Efficient Markets." In General
Mathematics Learner's Material, by Department of Education, 208-224. Pasig:
Department of Education.
Investopedia staff (n.d.) Bond basics: What are bonds? Accessed from
http://www.investopedia.com/university/bonds/bonds1.asp

Compiled by: GLORIFEL B. SAREÑO

MT-1, Math

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