ASIC ONCEPTS F TOCKS

LESSON 9.

ND ONDS

At the end of the lesson, the learner should be able to:

1. Illustrate stocks and bonds.

2. Distinguish between stocks and bonds.
3. Describe the different markets for stocks and bonds.
4. Analyze the different market indices for stocks and bonds.
5. Interpret the theory of efficient markets.
6. Illustrate business and consumer loans.
7. Distinguish between business and consumer loans.
8. Solve problems involving business and consumer loans (amortization and
mortages.

STOCKS AND BONDS

What do you want to become when you graduate?

Do you want to become owners of multinational companies?
In some instances, becoming a sole owner of company will be a large feat. However,
starting with being a part owner will prove to be easier.

STOCKS Stocks are shares in the ownership of a company.

Shareholders are given certificates once they buy shares.

EXAMPLE: 1. Your sister bought 1,000 stocks in a company for Php

55.00 per unit. In 3 years, the stocks have grown and are now worth
Php 75.00 per unit.
2. A company issued 20,000 shares of stocks. Your father bought 4,000 stocks shares.
This would mean that your father owns 20% of the total shares of the company.

Bonds are essentially certificates issued to people who lends

BONDS the company money.
Bond holders do not have voting powers when the company
conduct meetings but they (bond holders) are the first to claim earnings of the
company. Bond holders receive the face amount of their bond certificate as well as
interests in form of coupons, usually given semi-annually.

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 SUMMARY

TERMINOLOGIES

Dividends
– these are the shares in a company’s profit. Companies who issue bonds and stocks
give dividends to their investors.
Dividend per share
– this is the ratio of the dividends to the number of shares of a stock or bond holder.
This is given by the equation
Total Dividend
Dividend per Share = Total Shares
Stock Market
– this is a place where stocks can be bought. We have the Philippine Stock Exchange
(PSE) here in the country.
Market Value
– this is the current price of a stock at which it can be sold in the stock market.
Stock Yield Ratio
– this is the ratio of the annual dividend per share and the market value per share.
This is given by the equation
Dividend per Share
Stock Yield Ration = Market Value
Par Value (for Stocks)
– this is the per share amount as stated in the certificate given by the company to
their shareholders.
Or Face Value (for Bonds)
– amount payable on the maturity date of a bond. (F)
Coupons
– these are periodic interest payments that the bond holder
receives until the maturity of the bond certificate. These are usually given
semi-annually.

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Coupon Rate
– the rate of coupon payment period. (r)
Price of a Bond
– the price of the bond upon purchase. (P)
Term of a Bond
– this is the number of years before a bond certificate matures.
Fair Price of a Bond
– present value of all cash inflow of the bondholder.

1. If a company declared a Php 10,000,000.00 dividend for the

EXAMPLE: common stocks and there are 100,000 shares of common stocks,
how much is the dividend per share?

Given: Total dividend= Php 10,000,000.00

Total shares= 100,000.00
Find: Dividend per share
Total Dividend 10,000,000.00
Dividend per Share = Total Shares
= 100,000
= 100.00
2. Suppose that a bond has a face value of Php 100,000.00 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%.
Answer: Php 108,512.43

MARKET INDICES

Value - value of the index

Chg - change of the index value from the previous trading
day (i.e. value today minus value yesterday)
%Chg = ratio of Chg to Val (i.e. CHG divided by Val)

MORE INFORMATION
Philippine Stock Exchange
http://www.pse.com.ph/
PDS Group
http://www.pds.com.ph/

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 Fundamental Analysis – this is the analysis of different
THEORY OF public information about a stock.
EFFICIENT Technical Analysis – this refers to the analysis of patterns
MARKETS and historical data (prices) of stocks.

Developed by Eugene Fama in 1970 stock prices reflect all available information
about the stock (including historical information) hypothesizes that the stock prices are
accurate.
“Trust Market Prices” assures the public that no overvaluing or undervaluing is
happening to stock prices.

BASIC LOANS

Business Loan
– money lent to fund for business transactions.
Consumer Loan
– money lent to fund personal or family expenses.
Collateral
– assets used to secure a loan.
Term of the Loan
– time to pay the entire loan.

EXAMPLE: 1. Mr. Garcia borrowed Php 1,000,000.00 for the expansion of his
business. The effective rate of interest is 7%. The loan is to be
repaid in full after one year. How much is to be paid after one year?
Solution:
This is treated as a simple interest with term = 1.
𝐹 = 𝑃(1 + 𝑗)𝑛 = 1,000,000.00 (1 + 0.07)1 = 1,070,000.00
2. Ms. Samson borrowed Php 1,200,000.00 for the purchase of a car. If the monthly
payment is Php 30,000.00, how much is the interest paid for a term of 5 years?
Solution:
Since the monthly payment is Php 30,000.00 for 5 years,
mos
Total Payment = Php 30,000.00 (12 year) (5 years)
𝐓𝐨𝐭𝐚𝐥 𝐏𝐚𝐲𝐦𝐞𝐧𝐭 = 𝐏𝐡𝐩 𝟏, 𝟖𝟎𝟎, 𝟎𝟎𝟎. 𝟎𝟎
Interest = Total Payment − Money Borrowed
Interest = Php 1, 800,000.00 − Php 1,200,000.00
𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 = 𝐏𝐡𝐩 𝟔𝟎𝟎, 𝟎𝟎𝟎. 𝟎𝟎
3. If your house was bought for Php 3,000,000.00 and the bank required 20% down
payment, find the amount of the mortgage you took on the bank for your house.
Solution:
First thing to do is to compute for the down payment for the house.
Down payment = Php 3,000,000.00(0.20) = Php 600,000.00
Mortgage = Cash Value − Down payment
Mortgage = 3,000,000.00 − 600,000.00 = 2,400,000.00

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REMEMBER
In solving problems on basic loans, you need to use prior knowledge on interest and
annuities as the computations in basic loans will most often use formulas from interests
and annuities.