Week 14 GEC MATH

STOCKS, BONDS AND MUTUAL BONDS
STOCKS
- REPRESENTS THE OWNERSHIP SHARE OF A CORPORATION
STOCKHOLDERS
- THEY ARE THE BUYER OF STOCKS
STOCK CERTIFICATES
- VERIFIES THE NUMBER OF SHARES OF STOCK THEY OWN.
BONDS
- IT 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.
PAR VALUE
- IS THE ORIGINAL AMOUNT OF MONEY BORROWED BY A
COMPANY.
DIVIDENDS
- DISTRIBUTION OF A COMPANY’S PROFITS TO ITS
SHAREHOLDERS.
SHAREHOLDERS
- ARE PERSONS WHO OWN SHARES OF STOCKS IN A
CORPORATION
TWO TYPES OF STOCKS
• PREFERRED STOCK
• COMMON STOCK
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.
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.
NO-PAR VALUE STOCK
-IT IS A STOCK THAT DOES NOT HAVE A PAR VALUE AND THE
DIVIDEND IS QUOTED AS A PESO AMOUNT PER SHARE.
CUMULATIVE PREFERRED STOCK
- IT IS A TYPE OF PREFERRED STOCK THAT RECEIVES A
DIVIDEND EACH YEAR.
DIVIDEND IN ARREARS
- IS THE AMOUNT OF DIVIDENDS THAT ACCUMULATE AND ARE
OWED TO CUMULATIVE PREFERRED SHAREHOLDERS BEFORE FOR
PAST YEARS IN WHICH NO DIVIDEND ARE PAID.
CATEGORY OF PREFERRED STOCKS
•NONPARTICIPATING STOCK
•PARTICIPATING STOCK
NONPARTICIPATING STOCKS
- MEANS THAT SHAREHOLDERS RECEIVE ONLY ONE FIXED
DIVIDEND.
PARTICIPATING STOCKS
- MEANS THAT SHAREHOLDER MAY RECEIVE ADDITIONAL
DIVIDENDS IF THE COMPANY PERFORMS WELL.
CONVERTIBLE STOCKS
- MEANS THAT STOCK MAY BE EXCHANGED FOR A SPECIFIED
NUMBER OF COMMON SHARES IN THE FUTURE.
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 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑑 = 𝑃𝑎𝑟 𝑣𝑎𝑙𝑢𝑒 𝑥 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑅𝑎𝑡𝑒

EXAMPLE
THE AUS ENTERPRISES HAS 1,500,000 SHARES OF
COMMON STOCK OUTSTANDING. IF A DIVIDEND OF
P30,000,000 WAS DECLARED BY THE COMPANY
DIRECTORS LAST YEAR, WHAT ARE THE DIVIDENDS PER
SHARE OF COMMON STOCK?
EXAMPLE
THE BOARD OF DIRECTORS OF SSS INC., HAVE DECLARED A
DIVIDEND OF P18,000,000. THE COMPANY HAS 40,000
SHARES PREFERRED STOCK THAT PAY P60 PER SHARE AND
80,000 SHARES OF COMMON STOCK. CALCULATE THE
AMOUNT OF DIVIDENDS DUE THE PREFERRED
SHAREHOLDERS AND THE DIVIDEND PER SHARE OF
COMMON STOCK.
EXAMPLE
SIRUG CORPORATION HAS 70,000 SHARES OF P2,000 PAR
VALUE, 5% CUMULATIVE PREFERRED STOCK AND 250,000
SHARES OF COMMON STOCK. ALTHOUGH NO DIVIDEND
WAS DECLARED LAST YEAR, A P25,000,000 DIVIDEND WAS
DECLARED THIS YEAR. DETERMINE THE AMOUNT OF
DIVIDENDS DUE THE PREFERRED SHAREHOLDERS AND THE
DIVIDEND PER SHARE OF COMMON STOCK.
CURRENT YIELD
- IS A WAY OF DETERMINING THE CURRENT VALUE OF A
STOCK.
CURRENT YIELD FORMULA
𝐴𝑛𝑛𝑢𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑖𝑒𝑙𝑑 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
PRICE EARNINGS RATIO FORMULA
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝑃𝑟𝑖𝑐𝑒 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑟𝑎𝑡𝑖𝑜 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
PROCEEDS
- ARE THE AMOUNT OF MONEY THAT AN INVESTOR
RECEIVES AFTER SELLING A STOCK.
STOCKBROKER’S COMMISSION
- IS THE FEE CHARGES FOR ASSISTING IN THE PURCHASE
OR SALE OF SHARES OF STOCK.
- A PERCENT OF THE COST OF THE STOCK TRANSACTION.
STOCKBROKER
- IS A PROFESSIONAL IN STOCK MARKET TRADING AND
INVESTMENT WHO ACTS AS AN AGENT IN THE SELLING
AND BUYING OF STOCKS OR OTHER SECURITIES.
GAIN (OR LOSS)
- IS THE DIFFERENCE BETWEEN THE COST OF PURCHASING
THE STOCK AND THE PROCEEDS RECEIVED WHEN SELLING
THE STOCK.
ONE MORE FACTOR AFFECTING THE
COMMISSION IS WHETHER THE AMOUNT OF
SHARES PURCHASED IS A ROUND LOT
(MULTIPLE OF 100 SHARES), OR AN ODD LOT
(LESS THAN 100 SHARES)
FORMULA TO BE USED
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 𝑜𝑟 𝑙𝑜𝑠𝑠 𝑜𝑛 𝑡𝑟𝑎𝑛𝑠𝑎𝑐𝑡𝑖𝑜𝑛 = 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
EXAMPLE
IF RFS CORPORATION PAID A DIVIDEND OF P142.60 PER

SHARE LAST YEAR. IF YESTERDAY’S LAST PRICE WAS
P2,300, WHAT IS THE CURRENT YIELD ON THE STOCK?
EXAMPLE
WSS INC. IS CURRENTLY SELLING FOR P2,685 PER SHARE.

IF THE COMPANY HAD EARNINGS PER SHARE OF P89.50 IN
THE PAST YEAR, WHAT IS THE PRICE-EARNINGS RATIO FOR
WSS?
EXAMPLE
SOFIA WOULD LIKE TO OWN STOCK IN SSS AND GSIS, BUT SHE DOES
NOT KNOW IF EITHER STOCK IS A GOOD BUY. ONE THING SHE CAN DO
IS TO LOOK AT THE PRICE-EARNINGS RATIO FOR EACH.
• SSS, PRICE SHARE P2,464, ANNUAL NET INCOME PER SHARE P88
•GSIS, PRICE SHARE P1,900, ANNUAL NET INCOME PER SHARE P76
EXAMPLE
SHEILA PURCHASED 250 SHARES OF AUS INC. COMMON STOCK AT
P3,500 PER SHARE. A FEW MONTHS LATER, SHE SOLD THE SHARES AT
P4,000. HER STOCK BROKER CHARGES 3% COMMISSION ON ROUND
LOTS AND 4% ON ODD LOTS. CALCULATE THE (A) TOTAL COST, (B) THE
PROCEEDS, (C) THE GAIN OR LOSS ON THE TRANSACTION.
MUTUAL FUNDS
- INVESTORS CHOOSE A FUND WITH FINANCIAL GOALS SIMILAR TO
THEM. INVESTORS WHO PUT THEIR MONEY TO A POOL ALONG WITH
MANY OTHER INVESTORS, SHARE THE FUND’S PROFIT AND LOSSES
FROM THE INVESTMENT PORTFOLIO. THE MONEY INVESTED IN MUTUAL
FUND ARE HANDLED BY PROFESSIONALS WHOSE JOB IS TO RESEARCH
AND EVALUATE STOCKS, THE VALUE OF A SHARE DEPENDS ON THE DAILY
PERFORMANCE OF THE STOCKS IS CALLED NET ASSET VALUE OF FUNDS.
NET ASSET VALUE FORMULA
𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡 𝑉𝑎𝑙𝑢𝑒

= 𝑇𝑜𝑡𝑎𝑙 𝐹𝑢𝑛𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ÷ 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑆ℎ𝑎𝑟𝑒𝑠
EXAMPLE
A MUTUAL FUND HAS P18 BILLION WORTH OF STOCKS, P1.15 BILLION
WORTH OF BONDS, AND P1.7 BILLION IN CASH. THE FUND’S TOTAL
LIABILITIES AMOUNT TO P750 MILLION. THERE ARE 1 BILLION SHARES
OUTSTANDING. ELENA INVESTED P12,000 IN THIS FUND. CALCULATE THE
NET ASSET VALUE OF A MUTUAL FUND AND FIND THE NUMBER OF
SHARES WILL SHE PURCHASE?
HOME OWNERSHIP
MORTGAGE
IT IS THE DIFFERENCE BETWEEN THE SELLING PRICE AND DOWN

PAYMENT. THE BORROWER USUALLY THE OWNER OF THE PROPERTY AND
IS REFERRED TO AS THE MORTGATOR AND THE LENDER IS MORTGAGEE
EXAMPLE
THE PURCHASE PRICE OF A HOME IN A SUBDIVISION IN ANTIPOLO CITY
IS P4,200,000. A DOWN PAYMENT OF 20% IS MADE AND SECURES A
LOAN ON THE REMAINING BALANCE FOR 25 YEARS AT AN ANNUAL
INTEREST RATE OF 5.4%. FIND (A) THE MONTHLY MORTGAGE PAYMENT,
(B) THE TOTAL PAYMENT OVER THE LIFE OF THE LOAN, AND (C) THE
AMOUNT OF INTEREST PAID ON THE LOAN OVER THE 25 YEARS.
EXAMPLE
MS. MOLINA HAS A MONTHLY PAYMENT OF P12,700 ON A 20-YEAR LOAN

AT ANNUAL INTEREST RATE OF 5.7 %. AFTER MAKING PAYMENTS FOR 15
YEARS, SHE DECIDES TO SELL THE HOUSE. WHAT IS THE PAYOFF FOR THE
MORTGAGE?

Week 14 GEC MATH

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STOCKS, BONDS AND MUTUAL BONDS

𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑥 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒

𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑚𝑚𝑜𝑛 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 − 𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑑 = 𝑃𝑎𝑟 𝑣𝑎𝑙𝑢𝑒 𝑥 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑅𝑎𝑡𝑒

IF RFS CORPORATION PAID A DIVIDEND OF P142.60 PER

WSS INC. IS CURRENTLY SELLING FOR P2,685 PER SHARE.

𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡 𝑉𝑎𝑙𝑢𝑒

IT IS THE DIFFERENCE BETWEEN THE SELLING PRICE AND DOWN

MS. MOLINA HAS A MONTHLY PAYMENT OF P12,700 ON A 20-YEAR LOAN

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