Module in Mathematics 13

OLIVEROS COLLEGE (OCI) INCORPORATED
Zone 2 Gov. Crescini St., San Franciso, Iriga City

SENIOR HIGH SCHOOL DEPARTMENT
e-mail address: oci_iriga@yahoo.com.ph
Tel. No. 299 – 7734
11
Module 13
JANWILL A. PAZ
Instructor
Tel. No. 299 – 7734
Mathematics – Grade 11
Quarter 1 – Module 13:
Stock and Bonds
You want to know?
This module is designed to help you think and develop mathematical ideas. There are times
when you will feel confused, and there are times when it will be necessary to work on an
idea over a period of several days. You will encounter many interesting and challenging
problems in this module.
Goals:
 Illustrate stocks and bonds.

 Distinguishes between stock and bonds.
 Describes the different markets for stock and bonds.
 Analyzes the different market indices for stock and bonds.

Vocabulary List:
 Stocks – Stocks are certificates of ownership.

 mutual funds - pools of money (from thousands of investors) that are
invested in a variety of stocks or bonds by professional managers.
 Bonds - Bonds are certificates that promise to pay a fixed rate of interest.
 There are two types of stock: common stock and preferred stock.
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Getting Ready:
ENTRY CARD
Items Number of Items Price Per Item Total Cost of the Item
1 400 89.60
2 260 50.80
3 70 328.00
4 540 164.00
5 75 124.00
A. Multiply the number of items by the price per item to calculate the total cost of
Starting Point:

Much of the world's business activity would be impossible without stocks and bonds. Stocks
and bonds are certificates that are sold to raise money for starting a new company or for
expanding an existing company. Stocks and bonds are also called securities, and people
who buy them are called investors.
Stocks
Stocks are certificates of ownership. A person who buys stock in a company becomes one of
the company's owners. As an owner, the stockholder is eligible to receive a dividend, or
share of the company's profits. The amount of this dividend may change from year to year
depending on the company's performance. Well-established companies try to pay
stockholders as high a dividend as possible.
There are two types of stock: common stock and preferred stock. Owners of common

stock may vote for company directors and attend annual stockholders' meetings. At these
meetings they have the chance to review the company's yearly performance and its future
plans, and to present their own ideas. Owners of preferred stock do not usually have voting
rights or the right to attend stockholders' meetings. They do, however, have priority when
dividends are paid. The dividends on preferred stocks are paid according to a set rate, while
the dividends on common stocks fluctuate according to the company's performance. If the
company does well, however, preferred stocks do not usually gain in value as much as
common stocks. If a company goes out of business, preferred stockholders are paid off first.
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Bonds
Bonds are certificates that promise to pay a fixed rate of interest. A person who buys a bond
is not buying ownership in a company but is lending the company money. The bond is the
company's promise to repay that money at the end of a certain time, such as ten, fifteen, or
twenty years. In return for lending the company money, the bondholder is paid interest at
regular intervals. The interest rate is based on general interest rates in effect at the time the
bonds are issued, as well as on the company's financial strength. Bonds generally pay more
money than preferred stocks do, and they are usually considered a safer investment. If a
company goes bankrupt, bondholders are paid before both preferred and common
stockholders.
Local, state, and national governments also issue bonds to help pay for various projects,
such as roads or schools. The interest the bondholder receives from state and local bonds—
also called municipal bonds—is usually exempt from taxes.
History of Stocks and Bonds
The trading of goods began in the earliest civilizations. Early merchants combined their
money to outfit ships and caravans to take goods to faraway countries. Some of these
merchants organized into trading groups. For thousands of years, trade was conducted
either by these groups or by individual traders.
During the Middle Ages, merchants began to gather at annual town fairs where goods from
many countries were displayed and traded. Some of these fairs became permanent, year-
round events. With merchants from many countries trading at these fairs, it became
necessary to establish a money exchange, or bourse, to handle financial transactions.
(Bourse is a French word meaning "purse.")
One important annual fair took place in the city of Antwerp, in present-day Belgium. By the
end of the 1400's, this city had become a center for international trade. A variety of financial
activities took place there. Many merchants speculated—that is, they bought goods for
certain prices and hoped that the prices would rise later so they could make profits when
they sold the goods. Wealthy merchants or moneylenders also lent money at high rates of
interest to people who needed to borrow it. They then sold bonds backed by these loans and
paid interest to the people who bought them.
The Beginning of Modern Stocks
The real history of modern-day stocks began in Amsterdam in the 1600's. In 1602, the Dutch
East India Company was formed there. This company, which was made up of merchants
competing for trade in Asia, was given power to take full control of the spice trade. To raise
money, the company sold shares of stock and paid dividends on them. In 1611 the
Amsterdam Stock Exchange was set up, and trading in Dutch East India Company shares
was the main activity there for many years.
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Similar companies were soon established in other countries. The excitement over these new
companies made many investors foolhardy. They bought shares in any company that came
on the market, and few bothered to investigate the companies in which they were investing.
The result was financial instability. In 1720, financial panic struck in France when, after a
rush of buying and selling, stockholders became frightened and tried to sell their stocks. With
everyone trying to sell and no one buying, the market crashed.
In England, a financial scandal known as the South Sea Bubble took place a few months
later. The South Sea Company had been set up in 1710 to trade with Spanish South
America. The proposed size of company profits was exaggerated, and the value of its stocks
rose very high. These high stock prices encouraged the formation of other companies, many
of which promoted farfetched schemes. In September 1720, South Sea stockholders lost
faith in the company and began to sell their shares. Stockholders of other companies began
to do the same, and the market crashed as it had in France. These companies became
known as "bubble companies" because their stock was often as empty and worthless as a
bubble and the companies collapsed like burst bubbles.
Even though the fall of bubble companies made investors wary, investing had become an
established idea. The French stock market, the Paris Bourse, was set up in 1724, and the
English stock market was established in 1773. In the 1800's, the rapid industrial growth that
accompanied the Industrial Revolution helped stimulate stock markets everywhere. By
investing in new companies or inventions, some people made and lost huge fortunes.
Rise of the Small Investor
For many years, the main buying and selling of stocks was done by a few wealthy
individuals. It was not until after World War I that increasing numbers of small investors
began to invest in the stock market. There was a huge rise in speculative stock trading
during the 1920's, and many people made fortunes. However, the Roaring Twenties came to
an abrupt end in October 1929, when stock markets crashed and fortunes were wiped out
overnight. The crash was followed by the Great Depression of the 1930's, a period of severe
economic crisis throughout much of the world.
Since the end of World War II, small investors have begun investing again in stocks, and
stock markets have been relatively stable. A sharp fall in prices in 1987 led to another stock
market crash. Initially, this frightened many people away from stock investments. But within
a few months the market recovered and investor confidence returned.
Stock Exchanges Today
Today, the largest and most important stock exchanges are the New York Stock Exchange,
the London Stock Exchange, and the Tokyo Stock Exchange. These exchanges act as
marketplaces for the buying and selling of stocks. Another important source of stock
transactions is the NASDAQ system. NASDAQ, which stands for National Association of
Securities Dealers Automated Quotations, allows stock transactions to be made over
computer terminals simultaneously in many cities around the world. Thousands of stocks are
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now traded over the NASDAQ system
The New York Stock Exchange
In colonial America there were no stock exchanges. People who wanted to buy and sell
securities met in auction rooms, coffeehouses, or even on street corners. Stock trading was
unorganized, and people were reluctant to invest because they could not be sure they would
be able to resell their securities.
In 1792, a small group of merchants made a pact that became known as the Buttonwood
Tree Agreement. These men decided to meet daily to buy and sell stocks and bonds. This
was the origin of America's first organized stock market, the New York Stock Exchange
(NYSE).
Today there are more than 1,000 members of the New York Stock Exchange. Each of these
members "owns a seat" on the exchange. This term comes from early years, when members
had to stay seated while the exchange's president called out the list of securities to be
traded. Despite the change and growth of the New York Stock Exchange over the years, its
basic purpose has remained much the same—to allow companies to raise money and to
allow the public to invest and make their money grow.
The New York Stock Exchange operates under a constitution and a set of rules that govern
the conduct of members and the handling of transactions. The members elect a board of
directors that decides policies and handles any discipline problems. The exchange is
controlled by its own rules and by federal regulations set up by the Securities and Exchange
Commission, which was established by the U.S. government in 1934 under the Securities
and Exchange Act.
Until 1869 it was easy for a company to have its securities listed on the exchange. A broker
simply had to propose that a certain security be traded and get the consent of a majority of
the other members. As business expanded, however, greater regulation became necessary,
and the exchange established its first requirement for listing a company—that it be notified of
all stock issued and valid for trading. In the years that followed, the exchange added more
requirements, including company reports on earnings and other financial information. This
helps potential investors make investment decisions more wisely.
To qualify for a listing on the exchange today, a company must be in operation and have
substantial assets and earning power. The exchange considers a company's permanence
and position in its industry as well. All common stocks listed on the exchange must have
voting power, and companies must issue important news in such a way that all investors
have equal and prompt access to it.
In addition to the New York Stock Exchange, which is the largest exchange in the United
States, investors can also buy and sell stocks on the American Stock Exchange and several
regional exchanges. The American Stock Exchange, also located in New York, trades stocks
of small and medium-sized companies that do not meet the requirements for listing on the
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NYSE. Regional exchanges in Boston, Philadelphia, San Francisco, and other U.S. cities
handle stocks listed on the NYSE as well as local securities.
How the Stock Exchange Works
The New York Stock Exchange itself neither buys, sells, nor sets prices of any securities that
are listed. It simply provides the marketplace in which stocks and bonds are bought and
sold.
Placing an Order. Suppose an investor in Iowa decides to buy 2,000 shares of XYZ

Corporation. The investor calls a stockbroker—a registered representative of a stock
exchange member—whose job is to provide investors with information and carry out
investors' orders to buy and sell. The investor asks the broker the price of XYZ stock. The
broker checks the price on a computer terminal and learns that XYZ Corporation is quoted at
25 to a quarter. This means that, at the moment, the highest bid to buy XYZ is $25 a share
and the lowest offer to sell is $25.25 a share. The investor tells the broker to buy "at the
market," which means to buy shares at the best available price at the time the order reaches
the stock exchange. If the investor sets an exact price he or she is willing to pay, the order is
called a "limit order," and no sale can take place unless another stockholder wants to buy or
sell at that price.
By telephone or computer, the broker in Iowa sends the investor's order through a trading
desk at his or her firm's main office to a clerk on the floor of the stock exchange in New York.
The clerk alerts the firm's floor broker by putting the broker's call number on two boards, one
on each side of the trading floor. These boards are visible no matter where the floor broker is
standing. The broker sees the call number and immediately goes to take the order.
Trading Stock. Small orders, such as those under 1,000 shares, often are executed
automatically by computer at the best possible price at the time. Larger orders, however, are
traded on the floor of the exchange, with a floor broker bargaining on the investor's behalf.
This is the case with the Iowa investor's order of 2,000 shares of XYZ Corporation stock.
After receiving the order, the floor broker hurries to the place, called the trading post, where
XYZ Corporation shares are traded. Other brokers with orders to buy or sell stocks will also
be gathered there. Each trading post handles about 85 different stocks. This is where the
exchange's member-brokers make transactions for investors.
At the trading post, the floor broker looks up at a video monitor above the post to see the
current buy and sell prices for XYZ stock. Or he asks loudly, "How's XYZ?" and a specialist
in that stock answers, "Twenty-five to a quarter." This means that the order could be filled
immediately at a price of 25 [frac14], or $25.25. It is the broker's job, however, to get the
best possible price for an investor. he broker believes that a bid of 25 [frac18]will be
accepted, so he loudly makes that bid. Another broker who has an order to sell 2,000 shares
of XYZ at 25[frac18] accepts the bid and says, "Sold." A trade has taken place at 25[frac18].
Completing a Trade. Each broker completes the agreement by writing the price and the
name of the other broker's firm on an order slip. The brokers report the transaction to their
telephone clerks, so that the investors can be notified. Meanwhile, a record of the
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transaction is entered into the exchange's huge computer. This allows the transaction to be
displayed, with all others, on thousands of computer terminals throughout the United States
and around the world.
Specialists. Specialists are stock exchange members who help maintain an orderly market
in the stocks for which they are registered. They do this by buying and selling for their own
accounts whenever there is a temporary gap between supply and demand. In this way, they
smooth the way for investors, allowing them to sell when there are few buyers or to buy
when there are few sellers.
Specialists also act as brokers. A floor broker may choose to leave an order with a specialist,
to be carried out when the stock reaches a certain price. Specialists are especially helpful
with limit orders (orders with set prices). The price on a limit order may not come up for a
week or longer, or not at all. It would be impractical for a floor broker to wait until a matching
bid was made.
Odd Lots. Although a few stocks are sold in lots of 10 shares, most are sold in lots of 100.
Many people, however, may want to buy only a few shares of stock rather than a complete
lot. Shares sold in lots other than 10 or 100 are called odd lots. Orders in odd lots are not
matched against other orders. They are carried out by specialists or by brokerage firms for
their own accounts. The odd-lot system makes it possible for people with limited incomes to
invest in the stock market.
Buying on Margin. Sometimes investors may wish to buy stocks but would prefer not to pay
the total market price at the time of purchase. In such cases, the investors may buy on
margin—that is, they pay only part of the price (usually at least half) when the stocks are
purchased, and get credit for the rest from the brokerage firm. Buying on margin is very risky
because the loan must be repaid to the broker, with interest, even if the price of the stock
falls. To protect buyers and sellers, therefore, the federal government and the stock
exchange regulate the buying of stocks on margin.
Bulls and Bears. Bulls and bears refer to investors. A bull is someone who believes the
market will rise; a bear anticipates a market decline. Bulls and bears buy or sell hoping that
the market will follow the pattern they predict. As optimists, bulls generally buy stocks
expecting the value to rise, at which point they can sell and make a profit. As pessimists,
bears sell stocks at a high price because they anticipate a market decline.
Selling Short. Investors who can satisfy certain securities regulations may sell short, or sell
shares of stock they do not actually own. In selling short, an investor borrows shares from a
broker who is willing to lend stock. The investor finds a buyer for the stock at the current
market price, and then hopes that the price drops. When the price drops low enough, the
investor buys the shares needed to complete the short sale and returns the borrowed shares
to the lender. Selling short is risky. If the price drops, investors can make a profit on the
difference between the high selling price and the low buying price. But if the price does not
drop as expected, the investor not only does not make a profit, but can lose money buying
shares at a higher price in order to return them to the lender.
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Making Investments
Before investing money in securities, people should have a basic financial plan and
understand the risks as well as the rewards of investing. Investors should make certain that,
in addition to their regular income, they have money set aside for personal emergencies.
Investments often require time to increase in value. A careful study of the products, financial
histories, and future plans of companies can help investors choose stocks that will allow their
wealth to grow over time. Investors who prefer less risk might consider a money market fund
where their original investment is safe and earns current rates of interest.
Many investors today choose to invest in mutual funds—pools of money (from thousands of
investors) that are invested in a variety of stocks or bonds by professional managers. By
having a professional buy and sell for them, investors benefit from that person's expertise
and constant monitoring of the portfolio. In addition, a mutual fund offers a diversified group
of stocks or bonds, which means that a single investor can own pieces of many companies
with a relatively small monetary investment. Such diversification also means that fund
shareholders, unlike owners of individual stocks, are at less risk when a single stock drops
sharply in value. Because of these desirable features, mutual funds have become a popular
investment alternative for many investors.
Activity:
Test 1: Lisa received a commission of 11,000.00 on a sale of 200,000.00. What was
her rate commission?
Test 2: Find the future value of 145,000.00 invested at a 9 ½ interest rate for 1 year
and 9 months.
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Test 3: Find the yearly income Mr. Reyes will received from an investment in 1000
shares of ABC stock if a divided of 14.80 per share is paid quarterly.
Developing skills:
Direction: Match the term in Column A to the statements in Column B.
1. Stock certificate a. Stock with par value

2. Shareholder b. A dealer in stocks and bonds
3. Dividends c. Selling price of stock
4. Market price d. A paper showing shares owned
5. No-par stock e. Rate of income on bonds
6. Broker f. A fee charged by a broker
7. Yield g. Anyone who owns stocks
8. Broker’s commission h. Profit distributed to stockholders
Bibliography:
Orance, Orlando A. 2016. General Mathematics.
https://www.cliffsnotes.com/

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OLIVEROS COLLEGE (OCI) INCORPORATED

Zone 2 Gov. Crescini St., San Franciso, Iriga City

Stock and Bonds

You want to know?

 Illustrate stocks and bonds.

 Stocks – Stocks are certificates of ownership.

There are two types of stock: common stock and preferred stock. Owners of common

History of Stocks and Bonds

The Beginning of Modern Stocks

Rise of the Small Investor

Stock Exchanges Today

now traded over the NASDAQ system

The New York Stock Exchange

How the Stock Exchange Works

Placing an Order. Suppose an investor in Iowa decides to buy 2,000 shares of XYZ

1. Stock certificate a. Stock with par value

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