OBJECTIVES

Discuss stocks and bonds

Evaluate the returns from stocks and bonds

Solve problems involving stocks and bond

What is Stock?
 A form of equity financing
or raising money by allowing
investors to be part owners of
the company.
Definition of Terms
Stock- 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 brought or sold.
Definition of Terms

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.
Par Value – the per share amount as stated on the company
certificate.
Example 1:
A certain financial institution declared a
P30,000,000 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 = P30,000,000
Total Shares = 700,000

Find: Dividend per Share

Solution:
𝑻𝒐𝒕𝒂𝒍 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅
Dividend Per Share =
𝑻𝒐𝒕𝒂𝒍 𝑺𝒉𝒂𝒓𝒆𝒔

30,000,000
=
700,000

= 42.86
Therefore, the dividend per share is P42.86
Example 2:
A certain corporation declared a 3% dividend on a
stock with a par value of P500. Mrs Lingan owns
200 shares of stock with a par value of P500. How
much is the dividend she received?
Given: Dividend Percentage = 3%
Par Value = P500.00
Number of Shares = 200

Find: Dividend
Solution:
The dividend per share is: P500 x 0.03 = P15.00

Since there are 200 shares, the total dividend is :

P15/share x 200 shares = P3,000.00

In summary,
Dividend = (Dividend Percentage)x(Par Value)x(No. of Shares)
= (0.03)(500)(200)
= 3,000

Thus, the dividend is P3,000.00

 Example 3:
Corporation A, with a current market value of P52.00, gave a
dividend of P8.00 per share for its common stock. Corporation B,
with a current market value of P95.00, gave a dividend of P12.00
per share. Use the stock yield ratio to measure how much dividends
shareholders are getting in relation to the amount invested.
Corporation A

Given: Dividend per share = P8.00

Market Value = P52.00

Find: Stock yield ratio

Solution:
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock Yield Ratio =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒

8
=
52

= 0.1538 = 15.38%
Corporation B

Given: Dividend per share = P12.00

Market Value = P95.00

Find: Stock yield ratio

Solution:
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Stock Yield Ratio =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒

12
=
95

= 0.1263 = 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.
What is Bonds?
A form of debt financing or
raising money by borrowing
from investors.
Definition of Terms
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.
Coupon – periodic interest payment that the bondholder receives during the
time between purchased date and maturity date; usually received semi-
annually.
Definition of Terms
Coupon Rate – the rate per coupon payment period; denoted by r

Price of a Bond – the price of the bond at purchase time; denoted by P

Par Value or Face Value – the amount payable on 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

Definition of Terms

Term of a 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.
Fair Price of a Bond – present value of all cash inflows to the bondholder.
Example 1:
Determine the amount of the semi-annual
coupon for a bond with a face value of
P300,000.00 that pays 10%, payable semi-
annually for its coupons.
Given: Face Value F = P300,000.00
Coupon Rate r = 10%

Find: Amount of the semi-annual coupon

Solution:
Annual coupon amount: 300,000.00(0.10) = 30,000
1
Semi-annual coupon amount: 30,000 = 15,000
2

Thus, the amount of the semi-annual coupon is

P15,000.00
 Example 2:
Suppose that a bond has a face value of P100,000.00
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%.
Given: Coupon Rate r = 5%, payable semi-annually
Face Value = 100,000
Time to Maturity =10 years
Number of periods = 2(10) = 20
Market rate: 4%
Solution:
0.05
Amount of semi-annual coupon: 100,000 = 2,500
2

The bondholder receives 20 payments of P2,500.00

each, and P100,000.00 at t = 10
Solution:
𝐹 100,000
Present value of P100,000.00 : 𝑃= = = 67,556.42
𝑟 𝑛𝑡 1+0.04 10
1+𝑛

1 𝑟 2
Convert 4% to equivalent semi-annual rate: 1 + 0.04 = 1 +
2
𝑟
= 0.019804
2
Present value of 20 payments of P2,500 each:
𝑟 −𝑛𝑡
1− 1+𝑛 1− 1+0.019804 −20
𝑃=𝑅 𝑟 = 2,500 = 40,956.01
0.019804
𝑛
Solution:
Price = 67,556.42 + 40,956.01 = 108,512.43

Thus, a price of P108,512.43 is equivalent to all future

payments, assuming an annual market rate of 4%
ASSESSMENT
Identify.

_________1. Ratio of the dividends to the number of shares.

_________2. Share in the ownership of a company.
_________3. Ratio of the annual dividend per share and the market value per share.
_________4. Interest bearing security which promises to pay
(1) a stated amount of money on the maturity date, and
(2) regular interest payments called coupons.
_________5. 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.
Solve the following problems. (Copy and show the solution; use yellow pad paper.)
1. Corporation Ace, with a current market value of P92.00, gave a dividend of P28.00 per share for its common
stock. Corporation Best, with a current market value of P105.00, gave a dividend of P32.00 per share. Use the
stock yield ratio to measure how much dividends shareholders are getting in relation to the amount invested. In
which corporation will investment give a better return?
2. Stockholder A got 4500 shares of stocks from XYZ Corporation. The par value is P150. How much is the dividend
if the percentage is 3%?
3. A certain land developer declared a dividend of P 23,000,000 for its common stock. Suppose there are 500,000
shares of common stock, how much is the dividend per share?
4. A resort company gave out P11 dividend per share for its common stock. The market value of the stock is P17.
Determine the stock yield ratio.
5. Find the amount of the semi-annual coupon for a P110,000 bond which pays 4.5% convertible semi-annually for its
coupons.
6. A bond promises to pay the bondholder equal payments of P6,000 in six-month intervals for 30 years. If the face
amount is P450,000, what is the fair price of the bond? Assume that the market rate is 2% compounded annually.