MATH 01

General Mathematics
Senior High School
 Course Outcome 5 – MATH 01
Discussion Topics

Stocks and Bonds

Basic Concept of Stocks and Bonds
Dividend on Preferred and Common Stocks
Stock Valuation
Bond Valuation
 Course Outcome 5 – MATH 01
Discussion Topics

Stocks and Bonds

Basic Concept of Stocks and Bonds
Dividend on Preferred and Common Stocks
Stock Valuation
Bond Valuation
 Stocks and Bonds – Basic Concepts

Companies can raise money either by borrowing or selling shares of

stocks to finance operations, plan expansion, and others. If the company
raises money by means of selling shares of ownership, these ownership
shares are called stocks. The buyers of the stock is called stockholders, they
receive stock certificates verifying the number of shares of stock they own.
Sometimes companies raise money by selling bonds instead of stocks. A
bond is a promise from the company to pay the face value to the bond
owner at a future date along with the interest payment at a stated rate.
When the company issue bonds, they are traded as stock. If a company
reached bankruptcy, the bondholders have the first claim to the assets of the
company – before the stockholders. As with stock, changes in bond prices
vary accordingly to supply and demand. Brokers also charge commissions on
bond trading and these commissions also vary.
 Course Outcome 5 – MATH 01
Discussion Topics

Stocks and Bonds

Basic Concept of Stocks and Bonds
Dividend on Preferred and Common Stocks
Stock Valuation
Bond Valuation
 Stocks and Bonds – Dividends

Dividends are distribution of a company’s profits to its shareholders.

Shareholders are person who shares of stocks in a corporation. There are
two types of stocks, preferred and common stocks. Preferred stock is a class
of corporate stock in which the investor has preferential rights over the
common shareholders to dividends and a company’s assets. On the other
hand, common stock is a class of corporate in which the investor has voting
rights and shares directly in the success or failure of the business.
A par value is an arbitrary monetary figure specified in the corporate
charter for each share of stock and printed on each stock certificate. The
dividend for par value preferred stock is quoted a s a percent of the par
value. Alternatively, no-par value stock is a stock that does not have a par
value and the dividend is quoted as a peso amount per share.
 Stocks and Bonds – Dividends

Problem 1. The AUS Enterprises has 1,500,000 shares of common stock

outstanding. If a dividend of P 30,000,000 was declared by the
company directors last year, what are the dividends per share of
common stock?
Solution:
Dividend per share (common) = Total Dividend (common) / Number of
shares (common)
Dividend per share (common) = P 30,000,000 / 1,500,000 shares
Dividend per share (common) = P 20 per share
 Stocks and Bonds – Dividends

Problem 2. The board of directors of SSS Inc., have declared a dividend

of P 18,000,000. The company has 40,000 shares preferred stock that
pay P 60 per share and 80,000 shares of common stock. Calculate the
amount of dividend due the preferred shareholders and the dividend
per share of common stock.
Solution:
Total preferred dividend = Number of shares x Dividend per share
Total preferred dividend = P 40,000 (60)
Total preferred dividend = P 2,400,000
(continuation on next slide)
 Stocks and Bonds – Dividends

Total common dividend = Total dividend – Total preferred dividend

Total common dividend = P 18,000,000 – P 2,400,000
Total common dividend = P 15,600,000

Dividend per share (common) = Total common dividend / Number of

shares (common)
Dividend per share (common) = P 15,600,000 / 80,000
Dividend per share (common) = P 195 per share
 Stocks and Bonds - Dividends

Problem 3. Sirug Corporation has 70,000 shares of P 2,000 par value,

5% cumulative preferred stock and 250,000 shares of common stock.
Although no dividend was declared last year, a P 25,000,000 dividend
was declared this year. Determine the amount of dividends due the
preferred shareholders and the dividend per share of common stock.
Solution:
Dividend per share (preferred) = Par Value x Dividend Rate
Dividend per share (preferred) = P 2,000 (0.05)
Dividend per share (preferred) = P 100
(continuation on next slide)
 Stocks and Bonds - Dividends

Total preferred dividend = (Number of shares x Dividend per share) x 2

Total preferred dividend = 70,000 (P 100) (2)
Total preferred dividend = P 14,000,000

Total common dividend = Total dividend – Total preferred dividend

Total common dividend = P 25,000,000 – P 14,000,000
Total common dividend = P 11,000,000

(continuation on next slide)

 Stocks and Bonds - Dividends

Dividend per share (common) = Total common dividend / Number of

shares (common)
Dividend per share (common) = P 11,000,000/250,000
Dividend per share (common) = P 44
 Course Outcome 5 – MATH 01
Discussion Topics

Stocks and Bonds

Basic Concept of Stocks and Bonds
Dividend on Preferred and Common Stocks
Stock Valuation
Bond Valuation
 Stock Valuation

A. Current Yield for a Stock

To measure how much you have earned on a stock as compared with
other investments is by computing the current yield. The current yield
is a way of determining the current value of a stock. The current yield
shows how much dividend you can get as a percentage of the current
price of the stock per share. If a stock pays no dividend, there is no
current yield.

Current Yield = Annual Dividend per Share / Current Price per Share
 Stock Valuation

Problem 4. RFS Corporation paid a dividend of P 142.60 per share last

year. If the price yesterday was P 2,300, what is the current yield on the
stock?

Solution:
Current Yield = Annual divided per share / Current price per share
Current Yield = P 142.60 / P 2,300
Current Yield = 6.2%
 Stock Valuation

Problem 5. Calculate the current yield for SJS Corporation Stock, which
pays a dividend of P 70 per year and is currently selling at P 1,400 per
share.

Solution:
Current Yield = Annual divided per share / Current price per share
Current Yield = P 70 / P 1,400
Current Yield = 5%
 Stock Valuation

B. Price-earnings Ratio of Stock

Another thing that some people use to help them decide which stock
to buy is the price-earning ratio.

Price-earning Ratio = Current Price per Share / Earnings per share

 Stock Valuation

Problem 6. WSS Inc., is currently selling for P 2,685 per share. If the
company had earnings per share of P 89.50 in the past year, what is the
price-earning ratio for WSS?

Solution:
Price-earning Ratio = Current Price per Share / Earnings per share
Price-earning Ratio = P 2,685 / P 89.50
Price-earning Ratio = 30 or 30:1
 Stock Valuation

Problem 7. Dante would like to own stock in SSS and GSIS, but he does
not know which stock is good to buy. One thing he can do is to look at
the price-earnings ratio for each.
SSS, price per share P 2,464, annual net income per share P 88
GSIS, price per share P 1,900, annual net income per share P 76

Solution: Compare the price-earning ratio of SSS and GSIS.

 Stock Valuation

Solution:
For SSS,
Price-earning Ratio = Current Price per Share / Earnings per share
Price-earning Ratio = P 2,464 / P 88
Price-earning Ratio = 28 or 28:1
For GSIS,
Price-earning Ratio = Current Price per Share / Earnings per share
Price-earning Ratio = P 1,900 / P 76
Price-earning Ratio = 25 or 25:1
 Stock Valuation

C. Cost, Proceeds, and Gain (or Loss) of a Stock

Proceeds are the amount of money that an investor receives after
selling a stock. It is computed as a value of shares less the broker’s
commission. The stockbroker’s commission is the fee assisting in the
purchase or sale of shares of stock; a percent of the cost of the stock
transaction. A stockbroker is a professional in a stock market trading
and investment who acts as an agent in the selling and buying of stocks
or other securities. The gain (or loss) is the difference between the cost
of purchasing the stock and the proceeds received when selling the
stock.
 Stock Valuation

C. Cost, Proceeds, and Gain (or Loss) of a Stock

One more factor affecting the commission is whether the amount od
shares purchased is a round lot (multiple of 100 shares), or an odd lot
(less than 100 shares). The commission rate on a round lot is generally
a bit lower than an odd lot.
 Stock Valuation

C. Cost, Proceeds, and Gain (or Loss) of a Stock

Cost of Shares = Price per Share x Number of Shares

Broker’s Commission = Cost of Shares x Commission Rate
Total Cost = Cost of Shares + Broker’s Commission
Value of Shares = Price per Share x Number of Shares
Proceeds = Value of Shares – Broker’s Commission
Gain = Proceeds – Total Cost
 Stock Valuation

Problem 8. A man purchased 250 shares of AUS Inc. common stock at P

3,500 per share. A few months later, you sell the shares at P 4,000. Her
stockbroker charges 3% commission on round lots and 4% on odd lots.
Calculate the following:
a. total cost
b. the proceeds
c. the gain on the transaction
 Stock Valuation

Solution:
8a. Cost of Purchasing Stock:
Cost of shares = Price per share x Number of shares
Cost of shares = (P 3500)(250) = P 875,000
Broker’s commission = Cost of shares x Commission rate
Broker’s commission = (200)(P 3500)(0.03) + (50)(P 3500)(0.04)
Broker’s commission = P 28,000

Total Cost = P 875,000 + P 28,000 = P 903,000

 Stock Valuation

8b. Proceeds from Selling Stock

Value of shares = Price per share x Number of shares
Value of shares = (P 4,000)(250) = P 1,000,000
Broker’s Commission = Cost of shares x Commission rate
Broker’s Commission = (P 4,000)(200)(0.03) + (P 4,000)(50)(0.04)
Broker’s Commission = P 32,000
Proceeds = Value of Shares – Broker’s Commission
Proceeds = P 1,000,000 – P 32,000 = P 968,000
 Stock Valuation

8c. Gain on the transaction

Gain = Proceeds – Total Cost
Gain = P 968,000 – P 903,000
Gain = P 65,000
 Course Outcome 5 – MATH 01
Discussion Topics

Stocks and Bonds

Basic Concept of Stocks and Bonds
Dividend on Preferred and Common Stocks
Stock Valuation
Bond Valuation
 Bond Valuation

A. Current Yield of Bond

The current yield of bond is computed by dividing the annual interest
by the purchase price of a bond.

Current Yield = Annual Interest / Price of Bond

 Bond Valuation

Problem 9. What is the current yield of a bond whose face value is P

14,500 and pays a yearly interest of 12% if purchased at a face value of
P 13,920?

Solution:
If the price of bond is P 14,500,
Current Yield = 0.12(P 14,500)/(P 14,500) = 12%

If the price of bond is P 13,920,

Current Yield = 0.12(P 14,500)/(P 13,920) = 12.5%
 Bond Valuation

B. Price of a Bond using General Method

The same with stocks, when bonds are sold or bought, charge is
commonly added to the price of the bond.

C C C C
V
 Bond Valuation

B. Price of a Bond using General Method

The same with stocks, when bonds are sold or bought, charge is
commonly added to the price of the bond.

1− 1+𝑖 −𝑛
−𝑛
𝑃=𝐶 +𝑉 1+𝑖
𝑖
 Bond Valuation

Problem 10. A P 3,200, at 9% bond pays coupons quarterly and will be

redeemed on July 7, 2016. Find the price if the bond is bought on July
7, 2012 to yield 8% compounded quarterly if the bond is redeemable at
par.

Solution:
0.09
𝐶 = 𝑉𝑏 = 𝑃 3,200
4
𝐶 = 𝑃 72
(continuation on next slide)
 Bond Valuation

−16
0.08
0.08
−16 1− 1+
4
𝑃 = 𝑃 3,200 1 + + 𝑃 72
4 0.08
4

𝑷 = 𝑷 𝟑, 𝟑𝟎𝟖. 𝟔𝟐
 Bond Valuation

Problem 11. Repeat Problem 10 if the bond is redeemable at 110%.

Solution: 𝑉 = 𝑃 3,200 1.1 = 𝑃 3,250

−16
0.08
0.08
−16 1− 1+
4
𝑃 = 𝑃 3,520 1 + + 𝑃 72
4 0.09
4

𝑷 = 𝑷 𝟑, 𝟓𝟒𝟏. 𝟕𝟐
 Bond Valuation

Problem 12. A P 75,000 at 11% bond pays coupon semi-annually

redeemable at P 90,000 on January 13, 2017 is bought on January 13,
2011 to earn interest 13% compounded semi-annually. Find the
purchase price.

Solution:
0.11
𝐶 = 𝑉𝑏 = 𝑃 75,000
2
𝐶 = 𝑃 4,125

(continuation on next slide)

 Bond Valuation

−12
0.13
0.13
−12 1− 1+
2
𝑃 = 𝑃 90,000 1 + + 𝑃4,125
2 0.13
2

𝑷 = 𝑷 𝟕𝟓, 𝟗𝟐𝟔. 𝟐𝟎