Stocks and Bonds

STOCKS – a type o security that signifies ownership in a corporation and represents a claim on
part of the corporation ‘s assets and earnings.

BONDS – is a certificate or a written contract in which the debtor promises to pay its holder a
specified amount of money, plus a certain rate of interest at a stated future date.

PAR VALUE – is usually the price the investor pays when buying the bond from the issuing company.

DIVIDENDS – are the distribution of a company’s profits to its shareholders.

COMMON STOCKS – is a class of corporate stock in which the investor has voting rights and
shares directly in the success or failure of the business.

CUMULATIVE PREFERRED STOCK – is a type of preferred stock that receives a dividend each
year

STOCK VALUATION – is the process of calculating the values of goods or materials owned by a
company of available for sale in a store at a particular time.

SHAREHOLDER – a person who own shares of stocks in a corporation.

• The following are the formulas used in stocks:

• Total common dividend

• Dividend per share = ----------------------------------------------
• ( common ) Number of shares ( common )

• Total preferred dividend = Number of shares x Dividend per share

• Total common dividend = Total dividend – Total preferred dividend

• Dividend per share (preferred) = Par value x Dividend rate

 Example 1.
• The board of directors of SSS, Inc. has declared a dividend of
Php 18,000,000. the company has 40,000 shares preferred stock
that pay Php 60 per share and 80,000 shares of common stocks.
Calculate the amount dividends due the preferred shareholders and
the dividend per share of common stock.

• Given:
• Number of shares ( Preferred stock ) = 40,000
• Dividend per share ( Preferred ) = Php 60.00
• Number of shares ( common ) = 80,000
• Total Dividend = Php 18,000,000
• The total amount of dividend of a preferred stock:
Total preferred dividend = Number of shares x Dividend per share
= 40,000 ( Php 60.00 )
= Php 2,400,000
Total common dividend = Total dividend – Total preferred dividend
= Php 18,000,000 - Php 2,400,000
= Php 15,600,000
• Total common dividend
• Dividend per share = ----------------------------------------------
• ( common ) Number of shares ( common )
• Php 15,600,000
• = ------------------------------- = Php 195/ share
80,000
Current Yield for a Stock

• Current Yield – is a way of determining the current value

• of a stock.

• The current yield is computed using the formula:

• Annual dividend per share

• Current Yield = ----------------------------------------
• Current price per share
Example 2.

• If MMDN Corporation paid a dividend of Php 142.60 per share

last year. If yesterday’s last price was Php 2,300, what is the
current yield on the stock?
• Given: Annual dividend per share = Php 142.60
• Current price per share = Php 2,300

• Annual dividend per share Php 142.60

• Current Yield = ------------------------------------ = ---------------------
• Current price per share Php 2,300

• Current Yield = 0,062 x 100% = 6.2%

Bond Valuation

• Bond valuation - is a technique for determining the fair value

of a particular bond.

• Annual interest
• Current Yield = -----------------------------------
• Price of Bond
 Example 3.
•
• What is the current yield of a bond whose face value is Php 14,500
and pays a yearly interest of 12% if purchased at face value at
• Php 13,920?
• When the price of bond is Php 14,500 ; interest = 12%/100% = 0.12

• Annual interest ( 0.12 )( Php 14,500

• Current Yield = ---------------------------- = ------------------------------x100%
• Price of Bond Php 14,500
•
• = 12 %
• When the price of bond is Php 13,920
• Annual interest
• Current Yield = -------------------------------- x 100 %
• Price of Bond
• ( 0.12 )( Php 14,500 )
• Current Yield = -------------------------------- x 100 &
• Php 13,920

• = 12.5 %