Financial Markets Final Exam

Gilner L. Pomar Jr.
BSA 2-A
FINANCIAL MARKETS FINAL EXAM
All corporate data are actual. Show solutions.
1. D and L Industries Incorporated's (DNL) corporate charter authorized
it to issue 30,000 shares. DNL sold and issued 10,000 shares to the
original investor who founded the company. (a) How many authorized
shares and outstanding shares? A few years down the road, DNL
needs more capital to add on to their business, so it issues another
5,000 shares. (b) How many authorized shares and outstanding
shares? After a couple years, one of the investors wants to retire his
shares and leave the company. The board of directors reached a deal
and DNL purchases 7,000 shares from the shareholder. (c) How
many authorized shares and outstanding shares? (6 points)
Answer:
a). Authorized shares – 30,000
Outstanding shares – 10,000
b).Authorized shares – 30,000
Outstanding shares – 15,000 (30,000 – 10,000 – 5,000)
c.) Authorized shares – 30,000
Outstanding shares – 8,000 (15,000 - 7,000)
2. Lodestar Investment Hldgs Corp. (LIHC)

Lodestar Investment Holdings Corporation (LIHC), formerly Lodestar
Mining Corporation, was originally incorporated on January 3, 1974 as a
mining and natural resources exploration company. The Company was
engaged in the development of several gold and chromite mining claims in
Masbate, Cebu, Negros Occidental, and Palawan. On October 3, 2003, the
Securities and Exchange Commission approved the change in corporate
name to its present one and primary purpose from a mining company to an
investment holding company. At present, the Company has no commercial
operations but is in the process of searching for mining opportunities. (17
points)
Current Price: P0.79 (-3.66%)
Previous Close: P0.82
PE Ratio: -131.667
Open: P0.82
High: P0.82
Low: P0.79
52 Week High: P0.86
52 Week Low: P0.37
Outstanding Shares: 3,000,000,000
(a) (-3.66%) what does this indicate?
Answer: The (-3.66%) indicates the stock is trading lower than the
previous day’s close.
(b) What does the P/E Ratio indicate (company's perspective and
investors' perspective)?
Answer. The P/E in the company’s perspective means that a
company’s stock is over-values or under-valued or else those
investors are expecting a high or low growth rates in the future. The
P/E in the investor’s perspective tells how the company is
performing. In other words, how much they are willing to pay for a
peso worth of earnings.
(c) How much is LIHC worth as determined by the stock market? How
much is LIHC worth using the prior day's final price of a security
when the market officially closes for the day.
Answer: LHIC is worth P0.79 per stock or simply P2,370,000,000.
LHIC is worth P0.82 per stock or P2,460,000,000 using the previous
day closing market price.
(d) Discuss briefly two reasons why LIHC has a negative PE ratio.
Answer: One reason why LIHC has a negative PE ratio is they are
experiencing losses but is not always a sign of impending
bankruptcy. Another reason is they are reporting loss because they
don’t have commercial operation.
3. Manila Water Company, Inc. (MWC) is the East Zone concessionaire of
the Metropolitan Waterworks and Sewerage System (MWSS) and is
responsible for bringing water, sewerage and sanitation services to over six
million customers in eastern Metro Manila and Rizal Province. It is a
publicly-listed company and a subsidiary of the Philippine conglomerate
Ayala Corporation. (22 points)
Current Price: P16.30 (1.88%)
Previous Close: P16.00
PE Ratio: 7.376
Open: P16.08
High: P16.34
Low: P16.08
52 Week High: P16.40
52 Week Low: P5.01
Issued Shares: 2,064,839,617
Listed Shares: 2,027,238,060
Outstanding Shares: 2,064,839,617
(a) What is the total value of all Manila Water company ’shares of stock?
Answer:
Market Capitalization = Total Number of Shares Allotted by the Company *
Current Market Price of each Share
Market Capitalization = ( 2,027,238,060) (P16.30)
= 33,043,980,378
(b) How many shares are held by the investors and shareholders of
Manila Water Company?
Answer: 2,064,839,617
(c) What is the number of shares allotted by Manila Water Company?
Answer:
Total Number of Shares Allotted by the Company = Market Capitalization /
Current Market Price of each Share
Total Number of Shares Allotted by the Company = 33,043,980,378 /
P16.30
Total Number of Shares Allotted by the Company = 2,027,238,060
(d) Discuss briefly which category of common stocks Manila Water
Company belongs and why it is classified as such.
Answer: Defensive Stock
(e) If you own P500,000.00 worth of MWC stock, how many shares of
stock do you own?
Answer: (500,000.00)(16.30)
: 8,150,000
(f) What is the market price of MWC stock included at the lowest and
highest price at which a stock has traded during the previous 52
weeks?
Answer: 52 Week High 16.40
(g) How many securities are traded on the PSE for MWC?
Answer:
Issued shares: 2,064,839,617
Less: Outstanding Shares: 2,064,839,617
Securities Traded: 0
(h) How many shares are used to determine total shares available for
voting and the percentage of shareholding voting and voting rights of
each shareholder?
Answer: Listed Shares = 2,027,238,060
4. The COVID-19 pandemic has drawn more attention to pharmaceutical
companies developing coronavirus drug and vaccine candidates. Along
with these opportunities, though, come significant threats. Describe these
corporate stocks. (5 points)
Answer: Traders select stocks that appear to have great potential that is
not yet realized. Such stocks are subject of speculation, thus referred to as
speculative stocks. Speculative stocks tend to be clustered into sectors or
in various types and one of those is a pharmaceutical stock. COVID-19
brought us a huge breakdown especially to the people when it comes to
health, but in business such as pharmaceutical companies sees it as an
opportunity. They will begin to develop drugs and a vaccine candidate, as
they develop these vaccines comes with a great risk, a more aggressive
stock with uncertain prospects. Speculative stocks may offer significant
returns to investors but they will also have risk to match.
5. Philippines gaming operator Waterfront Philippines, Inc. (WPI) could

soon be in possession of a license to develop a new integrated resort in
Manila’s Entertainment City precinct after the Supreme Court denied an
appeal by gaming regulator PAGCOR against a 2018 decision compelling
award of the license. The issuance of a casino license will have a favorable
effect on WPI’s business or operations once the pandemic is over. What
advise will you give to your investors of WPI’s stocks? (5 points)
Answer: The advise I could give to the investors of the Waterfront
Philippines, Inc is to give them 2 choices, to continue to invest or to just
withdraw from investing in the business. The economy’s situation right now
is not very good and not timely to put up a business given the COVID-19
pandemic. If ever the pandemic is over, we cannot say that the economy
will rise instantly, of course the economy will start to build up again but not
instantly. Investing into a particular company comes with a great risk,
whether it would be successful or not, however one must be resilient and
keen to choose what company you should decide in investing. The
investors must be aware and careful to whether they would invest or not.
6. Cosco Capital Inc., (COSCO) quoted a bid-ask spread for the stock as
P20.40/P20.45.
(a) What does P20.40 represent?
Answer: P20.40 represents the bid price.
(b)What does P20.45 represent?

Answer: P20.45 represents the offer price or the ask price.
(c) When COSCO is highly traded, what happens to the spread?
Answer: When COSCO is highly traded the spread will be low.
(d)Which price represents the demand side of the market for a given
stock? (10 points)
Answer: The bid represents the demand side of the market for a given
stock.

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Gilner L. Pomar Jr.

2. Lodestar Investment Hldgs Corp. (LIHC)

5. Philippines gaming operator Waterfront Philippines, Inc. (WPI) could

(b)What does P20.45 represent?

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