NAME: ____________________________________ YR & SEC: ___________________

Competency:
The learner will be able to illustrate stocks and bonds. (M11GM-IIe-1), distinguishes between stocks
and bonds. (M11GM-IIe-2). describes the different markets for stocks and bonds. (M11GM-IIe-3).
analyzes the different market indices for stocks and
bonds.( M11GM-IIe-4)

To the Learners: This module is heartedly produce to combine high quality content with flexible
elements to accommodate diversity each environments ,and to promote fundamental concepts to
empowered individual, through a program that engage in a creative and critical thinking to transform
others and oneself.

1. Always bear in mind that your teacher is always here to support and guide you.
2. Carefully follow the instructions and directions.
3. Highlights all necessary important concepts in this module.
4. To the parents : you can impart whatever you can to your learners if possible you can use
other resources like internet .
5. For solving , you can use separate sheet of papers to check for your computations.

Expectations
As the end of this lesson learners can define important terms involving stocks and solve
problems involving stock valuation.

Pre Test

Tell whether the following is a characteristics of a stock or bonds.

a. A form of equity financing or raising money by allowing investors to be a part owners of the company.
b. A form of debt financing or raising money by borrowing from investors.
c. Investors are guaranteed interest payments and a return of their money at the maturity date.
d. Investors can earn if the security prices increase, but they can lose money if the
security prices decrease or worse, if the company goes bankrupt.
e. It can be appropriate for retirees (because of the guaranteed fixed income) 0r for those who need
the money soon.

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 Looking Back to your Lesson

Annuities have been used in many areas in our society. Government and non government
agencies are using annuity products to fund their retirement plans.
Ordinary annuity is the most commonly used annuity whose periodic payments made at the end of each
payment interval.
Annuity due is a type of annuity whose periodic payments are made at the beginning of each payment
interval.
A deferred annuity allows someone to defer payments until a later point in time.

Introduction of the Topic

I. Illustrate Stocks and Bonds.

● STOCKS
Some corporations may raise money for their expansion by issuing stocks, stocks are shares in
the ownership of the company. Owners of stocks may be considered as part owners of the
company. There are two types of stocks: 1.Common stocks
-represents the most common type of stock issues by companies and entitles
shareholders to participate in the profit and growth of the company they invest in.
When looking at investing in the stock market for the most part you are buying
common shares in a company . Common stock has the additional benefit of
enabling
its holders to vote on company issues and when choosing the company’s
leadership . Usually , one share of common stock equals one vote.
2. Preferred stocks.
-doesn’t offer the same profit potential as common stock, but it’s a more stable
investment vehicle because it guarantees a regular dividend
that isn’t directly tied to the market as with the price of common stock. Preferred
stock guarantees dividends , which common stock does not. The price of preferred
stock is tied to interest rate levels; it tends to decrease if interest rates go up and
increase if interest rates fall.
Preferred stock is further divided into non-participating and participating
stock.
Non-participating typically receives an amount equal to the initial
investment plus accrued and unpaid dividends upon a liquidation event. Holders of
common stock then receive more per share than holders of preferred stock upon a
sale or liquidation(typically where the company is being sold at a high valuation),
then holders of preferred stock should convert their states into common stock and
give up their preference in exchange for the right to share pro rata in the total
liquidation proceeds.
Participating preferred also typically receives an amount equal to
the initial investment plus accrued and unpaid dividends upon a liquidation event.
However, participating preferred then participates

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 on an ―as converted to common stock‖ basis with the common stock in the
distribution of the remaining assets.
Both will receive dividends or share of earnings of the company. Dividends are paid first to
preferred shareholders.

● BONDS
Bonds are interest bearing security which promises to pay amount of money on a certain maturity
date as stated in the bond certificate. Unlike the stockholders
, bondholders are lenders to the institutions which any be a government or
private company. Some bond issuers are the national government ,government agencies ,
government owned and controlled corporations, non-bank corporations, banks and multilateral
agencies.

Types of Bonds
There are four types of bond namely: government bond, municipal bond,
corporate bond and zero coupon bond.

GOVERNMENT BONDS:
Bondholders of government bonds are loaning money to a government.
MUNICIPAL BONDS
The word ―municipal‖ relates to smaller local government . like those which govern
towns, countries, cities, or states—i.e . not national/federal governments. Just as investor can
loan money to federal governments, so , too, can they loan money to local governments, usually
to help fund specific public projects, like water/sewerage upgrades, hospitals, schools, etc.
CORPORATE BONDS
As the name suggests , corporate bonds are where investors loan money to corporations.
They make for riskier investments than government and municipal bonds, but the potential
returns are much higher.
ZERO – COUPON BONDS
These bonds are often sold at a discount and have a fixed interest rate that only pays out
upon bond maturity. In other words, there are no periodic interest payments from these bonds;
instead , the interest accrues , or builds up
, over time.

There are four basic concepts that will help to understand bonds:
Par Value- also known as a face or principal value, is how much the bondholders will receive at
maturity. A Php 100,000 value bond will be worth Php 100,000 when it matures.

Coupon- is the interest rate the bond pays. It is called the coupon rate because once came with
a book or coupons, which the holder had to clip and send in to receive an interest payment. Bond
investors are still preferred to sometimes as ―coupon clippers‖. This interest rate does not vary
over the life of the bond, although there are some bonds, which have a variable interest rate tied
to an
external index.

Maturity - refers to the length of time before the par value is returned to the bondholder. It
may be as a few months, 50 years, or more. At maturity, the bondholder receives the par
value of the bond.

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 Yield-is the term you will hear the most about bonds their yield
and it can be the most confusing . There are three different types of yield to explain.
Nominal yield, current yield and yield to maturity.
● Nominal Yield- is the coupon or interest rate. Nothing else is factored
to this number. It is actually not very helpful.
● Current Yield- considers the current market price of the bond, which may be
different from the par value and gives you a different return on that basis.
● Yield to Maturity- is the most complicated , but the most useful
calculation. It considers the current market price, the coupon rate, the time to maturity
and assumes that interest payments are reinvested at the bond’s coupon rate. It is very
com,plicate calculation best done with a computer program or programmable business
calculator. However, when the media talks about a bond’s ―yield‖ it is usually this
number they are talking about.
3. Distinguish between stocks and bonds.

Stocks Bonds

A form of equity financing or raising money by A form of debt financing , or raising money by
allowing investors to be a part owners of the company borrowing from investors.

Stock prices vary every day. These prices are reported Investors a=re guaranteed interest payments and a
in various media (such as newspaper return of their money at the maturity date.
, TV , internet, etc.)

Investing in stock involves some uncertainty. Investors Uncertainty comes from the ability of the bond issuer to
can earn if the stock prices increase, but they can lose pay the bondholders. Bonds issued by the government
money if the stock prices decrease or worse, if the pose less risk than those by companies because the
company goes bankrupt. government has guaranteed funding (taxes) from which
it can pay its loans

Higher risk but with possibility of higher returns. Lower risk but lower yield.

Can be appropriate if the investment is for long term Can be appropriate for retirees (because of the
(10 years or more). This can allow investors to wait for guaranteed fixed income) or for those who need the
stock prices to increase if ever they go low. money soon(because they cannot afford to take a chance
at the stock market).

Also:
Comparison and contrast about bonds and stock

Type Bond Stock

Sale Debt Equity

Meaning A bond is a debt security , in which Stock capital raised by a corporation

the authorized or joint-stock company through the
issuer owes the holders a debt issuance and distribution of shares.
and is obliged to repay the
principal and interest.

Centralization Bonds markets. Unlike stock or Stock or share markets, have

share markets, often do not have a centralozed exchange or trading
centralized exchange or trading system.
system.

Holders Bond holders are in essence The stock holders own a part of the
lenders to the issuer. Owner is a issuing company. Owner obtains stake
creditor to the issuer. in the issuer.

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 Return of Principal Return of principal is Principal is at full risk.
promised

Legal Rights More legal rights for non Securities

payment.

Participants Investor , Speculators , Market maker, Floor trader . Floor

Institutional Investor broker.

-High priority for repayment in -Low for repayment in case of

Risk case of issuer bankruptcy. issuer bankruptcy.
-Price fluctuate over time but face -Price fluctuate over time .
value remains stable. -Usually has voting rights
-No voting rights

Issued By Bonds are issued by government , Stocks for repayment are

credit institutions, companies and issued by corporation or joint-
supranational institutions. stock companies

Owners Bondholders Stockholders/shareholders

4. Definition of terms in relation to stocks

● Stocks- 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- ma place where stocks can be bought or sold. The stock market in the
Philippines is governed by the Philippine Stock Exchange(PSE)
● 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.
Also called current stock yield.
● Par Value- The per share amount as stated on the company certificate.
Unlike market value, it is determined by the company and remains stable over time.
EXAMPLE 1:
A certain financial institution declared a 30,000,000 dividend for the common stocks.
If there are a total of 700,000 shares of common stock, how much is the dividend per share?
Solutions:
Total Dividend = 30,000,000 Given:
Total shares = 700,000 Given:
What is Dividend per share Asking:
Dividend per Share = Total Dividend Formula:
Total Shares
= 30,000,000 Substitute the given to the formula:
700,000
= 42. 86 Answer:
Therefore, the dividend per share is 42. 86
EXAMPLE 2:
A certain corporation declared a 3% dividend on a stock with a par value of 500.
Mrs. Reyes owns 200 shares of stock with a par value of 500. How much is the
dividend she received?
Solution:
Dividend Percentage = 3 % Given:
Par Value = 500 Given:

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 Number of Shares (Mrs. Reyes) = 200 Given:
What is the Dividend Mrs. Reyes will received ? Asking:
Dividend = Dividend Percentage X Par Value X Number of Shares Formula:
= 0. 03(500)(200) Substitute the given:
= 3.000
Thus, the dividend is 3,000.
EXAMPLE 3:
Corporation A , with a current market value of 52, gave a dividend of 8 per share
for its common stock. Corporation B, with a current value of 95, gave a dividend of
12 per share. Use the stock yield ratio to measure how much dividends shareholders are getting in
relation to the amount invested.
SOLUTION:
Corporation A:
Dividend per share = 8 Given:
Market value= 52 Given:
What is the Stock Yield Ratio? Asking:
Stock Yield Ratio = Dividend per Share Formula:
Market Value
=8 Substitute the given to the formula:
52
= 0. 1538 Multiply by 100
= 15. 38% Convert to Percent

Corporation B:
Dividend per share = 12 Given:
Market value= 95 Given:
What is the Stock Yield Ratio? Asking:
Stock Yield Ratio = Dividend per Share Formula:
Market Value
= 12 Substitute the given to the formula:
95
= 0. 1263 Multiply by 100
= 12. 63% Convert to Percent

Thus, Corporation A has a higher stock yield ratio than Corporation B. But each peso would 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.
4. Definition of terms in relation to bonds.
● Bond- 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
purchase date and maturity date, usually semi-annually
● Coupon Rate- the rate per coupon payment, 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.

● Term (or Tenor) 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 tine of purchase to maturity date
● Fair Price of a Bond-present value of all cash inflows to the bondholder.

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 EXAMPLE 4:
Determine the amount of the semi-annual coupon for a bond with a face value of 300,000 that pays
10% , payable semi-annually for its coupon.
SOLUTION:
Face Value F = 300.000 Given:
Coupon Rate r = 10% Given:
What is the amount of semi-annually Coupon Asking:
Annual Coupon Amount = Face Value x Coupon rate Formula:
=300,000 x (0.10) Substitute the given to the formula
= 30,000 (annually)
But the problem is asking for semi-annually:
Therefore :
Semi-annually coupon amount = 30,000 ( 1 ) = 15,000
2

EXAMPLE 5:
Suppose that a bond has a face value of 100,000 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 is 4%.
SOLUTION:
Face value F = 100,000 Given:
Coupon rate r = 5% Given:
Time to Maturity = n = 10 years Given:
Number of Periods = 2(10) = 20 Given:
Market Rate = j = 4% Given:
What is the Fair Price of the Bond? Asking:
Amount of semi-annual coupon = Face Value x Coupon rate / 2 Formula:
=100,000 ( 0.05 2) Substitute the given to the formula
= 2,500

But, the bondholder receives 20 payments of 2,500 and 100,000 at t = 10

Present value of 100,000

P = ___F____ Formula
(1 +j)n

= 100,000 Substitute the given to the formula (1+

0.04)10
P = 67,556.42

But the present value of = 100,000

Convert 4%1 to equivalent(2) semi-annual
2 rate:
1+ i
Formula for semi –annually
(1 + 0.04)
(2)
= ( 2 )
i = 0.019804
2
Thus,
P = R 1-(1+j)-n Formula
j
= 2,500 1- (1+0.019804)-20 Substitute the given
0.019804
= 40,956.01, and
Price = 67,556.42 + 40,956.01 Add the two P’s
Therefore P = 108,512.43
Thus, a price of 108,512.43 is equivalent to all future payments, assuming an annual market rate of
4%.

Stock Market Index

Is a measure of a portion of the stock market. One example is the PSE Composite Index or PSEi. It
is composed of 30 companies carefully selected to represent the

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 general movement of market prices. The up and down movement in percent over time can indicate how
the index is performing.

Other indices are sector indices, each representing a particular sector.

The stock index can be a standard by which investors can compare the performance of their stocks. A
financial institution may want to compare its performance with those of others. This can be done by
comparing with the ― financial‖ index.

Market Stock Tables

Stock indices are reported in the business section of magazines , or newspapers as well as online.
The following table shows a list of index values is typically presented

Index Val Chg %Chg

PSei 7,523.93 -14.20 -0.19
Financial 4,037.83 6.58 0.16
Holding Firms 6,513.37 2.42 0.037
Industrial 11,742.56 125.08 1.07
Property 2,973.52 -9.85 -0.33
Services 1,622.64 -16.27 -1.00
Mining and Oil 11,914.73 28.91 0.24

In the table above, the term mean the following:

● Val- value of the index
● Chg- change of the index value from the previous trading day
● %Chg- ratio of Chg to Val

Activities
A.1.The table below shows the data on 5 stockholders given the par value , the dividend percentage and the
number of shares of stock they have with a certain corporation. Find the dividend of each 5 stockholders.

Stockholder Par Value (in Pesos) Dividend (%) Number of Shares

A=? 50 3% 100
B=? 48 2.75% 150
C=? 35 2.5% 300
D=? 42 3.12% 400
E=? 58 3.5% 500

Use: (Dividend = Dividend Percentage x Par Value V x Number of Shares )

B.1. ABC corporation declared a 8% dividend on a stock with a par value of 1000. Mr
Payumo owns a 300 shares of stock with a par value of 300. How much is the dividend he might
received in the future?
C.1. Kho financial institution declared a 50,000,000 dividend for a common stocks. If
there are a total of 400,000 shares of common stock, how much is the dividend per share of its stock?
D.1. A bond with a face value of 500,000 that pays 25%, find the amount of semi-annual
coupon payable semi-annually for its coupons.
E.1. ACAD Developer declared a dividend of 25,000,000 for its common stock. If there are 400,000
shares of common stock , how much is the dividend per share ?

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 Remember

● Stock is a share of ownership in a business or company.

● The stockholders are the owners of the firm.
● Stock valuation is important in order to compare the price of the stock with respect to the market
value.
● Bond is a debt of the firm.
● Bondholders are creditors and not owners of the firm or company.
● Bond valuation is a technique determining the price of the particular bond

Check your Understanding Answer

the following problemscompletely.

a. A land developer declared a dividend of 10,000,000 for its common stock. Suppose there are
600,000 shares of common stock, how much is the dividend per share ?
b. A certain company gave out 25 dividend per share for its common stock. The market
value of the stock is 92. Determine the stock yield ratio.
c. A property holdings declared a dividend of 9 per share for the common stock. If the
common stock closes at 76,how large is the stock yield ratio on this investment?
d. Find the amount of the semi-annual coupon for a 250,000 bond which pays a 7%
convertible semi-annually for its coupons.

Post-Test

Answer the following problems completely.

a. A food corporation declared a dividend of 25,000,000 for its common stock. Suppose there
are 180,000 shares of common stock , how much is the dividend per share ?
b. A certain financial institution declared 57 dividend per share for its common stock. The market
value of the stock is 198. Determine the stock yield ratio.
c. A certain land developer declared a dividend of 28 per share for the common stock. If the
common stock closes at 99, how large is the stock yield ratio on this investment?
d. Determine the amount of semi-annual coupon paid for a 3% bond with a face value of 80,000 which
matures after 15 years.
e. A 450,000 bond is redeemable at 550, 000 after 5 years. Coupons are given at 5 %
convertible semi-annually. Find the amount of the semi-annual coupon.

Reflection

Direction: After the discussion ,lessons ,and studies the learner should answer the
following question to be able to know whether the learner attain some level of
knowledge learned in this session.
1. I’ve learned in this lessons were________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. I can use what I have learned in real-life and everyday situations

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such as ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
3. While answering the module, I have learned that _________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
4. Sharing with my friends and family the knowledge on
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________ 5.
Well, the lesson is ______________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

Additional Activities

A. Define the following.

1. Stocks 2.Bonds
3.Equity 4.Debt
5.Maturity

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