Basic Concepts of

Stocks and Bonds

Learning Objectives:
• Illustrate stocks and bonds. M11GM-IIe-1
• Distinguish between stocks and bonds. M11GM-
IIe-2
• Describe the different markets for stocks and
bonds. M11GM-IIe-3
• Analyze the different market indices for stocks
and bonds. M11GM-IIe-4
 Here is the comparison of Stocks and Bonds.

Here is the comparison of Stocks and Bonds.

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

Stock prices vary every day. These prices are reported in Investors are guaranteed interest payments and a return of
various media. their money at maturity date.

Investing in stocks involves some uncertainty. Investors can Uncertainty comes from the ability of the bond issuer to pay
earn if the stock prices increase, but they can lose money if the bond holders. Bonds issued by the government pose less
the stock prices decrease or worse, if the company gets risk than those by companies because the government has
bankrupt. 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 the long term (10 Can be appropriate for retirees (because of the guaranteed
years or more). This can allow investors to wait for stock prices fixed income) or for those who need the money soon (because
to increase if ever they go low. they cannot afford to take a chance at the stock market).
STOCKS
Example of Certificate
 Definition of terms

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- a place where stocks can be bought or sold.
Market Value- the current price of a stock at which it can be sold
Stock Yield Ratio- ratio of the annual dividend 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 ₱30 000 000.00 dividend for the
common stocks. If there are a total of 700
000 shares of common stock, how much
is the dividend per share?
Find: Dividend per Share
!"#$% &'('&)*&
Dividend per share =
!"#$% +,$-)+
Given:
Total dividend = P30,000,000
Total shares = P700,000
Solution:
./0,000,000
= .200,000
= P42.86
Therefore, the dividend per share is P42.86
2. A certain corporation declared 3%
dividend on a stock with a par value of
₱500.00. Mrs. Lingan owns 200 shares of
stocks with a par value of ₱500.00. How
much is the dividend she received?
Find: Dividend
Dividend = (Dividend percentage)(Par value)(no. of shares)
Given:
Dividend Percentage = 3%
Par Value = P500
Number of Shares = 200
Solution:
Dividend = (0.03)(500)(200)
= 3,000
Thus, the dividend is P3,000
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
market 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.
Formula for Stock yield ratio

!"#"$%&$ '%( )*+(%

Stock yield ratio =
,+(-%. #+/0%
Find: Stock yield ratio
Corporation A Corporation B
Given: Given:
Dividend per Share = 8 Dividend per Share = 12
Market Value = 52 Market Value = 95
! $#
= =
"# %"
= 0.1538 = 0.1263
=15.38% =12.63%
Corporation A has a higher stock yield ratio than Corporation
B. Thus, 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.

As this example shows, the stock yield ratio can be used to

compare two or more investments.
 ACTIVITY
1. Financial Institution declared a dividend of P75,000,000 for its common
stock. Suppose there are 900,000 shares of common stock, how much is
the dividend per share?

2. The ABC Corporation gave out P38 dividend per share for its common
stock, The Market Value of the stock is P108. Determine the Stock Yield
Ratio.

3. A bank declared a dividend of P27 per share for the common stock. If the
common stock closes at P93, how large is the stock yield ratio on his
investment?
 ACTIVITY
1. Financial Institution declared a dividend of P75,000,000 for its common
stock. Suppose there are 900,000 shares of common stock, how much is
the dividend per share?
Ans. Dividend per share = P83.33
2. The ABC Corporation gave out P38 dividend per share for its common
stock, The Market Value of the stock is P108. Determine the Stock Yield
Ratio.
Ans. Stock yield ratio = 0.35
3. A bank declared a dividend of P27 per share for the common stock. If the
common stock closes at P93, how large is the stock yield ratio on his
investment?
Ans. SYR = 0.29
Bonds
 Definition of Terms

Bond- interest-bearing security which promises to pay a stated amount of

money on the maturity date, and regular interest payments called coupons.
Coupon- periodic interest payment that the bondholder receives during the
time between purchase date and maturity date; usually received semi-
annually
Coupon Rate (𝑟)- the rate per coupon payment period; denoted by r
Price of a Bond (𝑃)- the price of the bond at purchase time; denoted by P
Par Value or Face Value (𝐹)- 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 (𝑡)- fixed period of time (in years) at
which the bond is redeemable as stated in the bond
certificate; number of years from time of purchase to maturity
date
Fair Price of a Bond- present value of all cash inflows to the
bondholder
Example:

4. Determine the amount of the

semi-annual coupon for a bond with
a face value of ₱300,000.00 that
pays 10%, payable semi-annually for
its coupons.
 Find: Amount of the semi-annual coupon
Annual coupon amount = (Face Value)(Coupon rate)
Given:
Face Value = P300,000
Coupon rate = 10%
Solution :
Annual coupon amount = (300,000)(0.10) = 30,000
Semi annual coupon amount:
30,000(0.5) = 15,000
Thus, the amount of the semi-annual coupon is P15,000
The coupon rate is used only for computing the coupon
amount, usually paid semiannually. It is not the rate at
which money grows. Instead current market conditions
are reflected by the market rate and is used to
compute the present value of future payments.
5. Suppose that a bond has a face value
of ₱100,000.00 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 rate is 4%.
Find : Fair price
Given :
Coupon rate = 5%
Face value = 100,000
Time to maturity = 10 years
!.!#
Amount of semi-annual coupon : 100,000 ( $ ) = 2500
The bondholder receives 20 payment of 2500 each and P100,000 at t=10
Annual market rate = 4%
m=1
p=6
c = 12
Fair Price = Present Market Value + Present
Coupon Value
Present Market Present Coupon *+
Value
Value 𝑅 1+𝑗 −1
! 𝑃= , − 1]
P= ! "#
−[ 1 + 𝑗 &$% *"
"#" -.$$ "#$.$(
"$$,$$$
= '
= * "#.$( $( *"
("#$.$()$%
= P67,556.42 = P40956.05
Price:
= 67,556.42 + 40,956.05
= 108,512.47

Thus, a fair price of P108,512.47 is equivalent to all

future payments, assuming an annual market rate of
4%
 ACTIVITY
1. Find the amount of the semi-annual coupon for a P200,000 bond which
pays 5% convertible semi-annually for its coupons.

2. Determine the amount of semi-annual coupon paid for a 3% bond with a

face value of P100,000 which matures after 8 years. How many coupons are
paid and amount of each coupon?

3. Find the Fair Price of A certain bond pays coupons of P5,000 every six
months for;
Face Value = P120,000,
Time of maturity = 8 years,
Market rate = 6% annually
 ACTIVITY
1. Find the amount of the semi-annual coupon for a P200,000 bond which pays 5%
convertible semi-annually for its coupons.
Ans. Amount = P5,000
2. Determine the amount of semi-annual coupon paid for a 3% bond with a face
value of P100,000 which matures after 8 years. How many coupons are paid and
amount of each coupon?
Ans. Amount per semi-annual coupon = P1,500 paid 16 time every six months
3. Find the Fair Price of A certain bond pays coupons of P5,000 every six months
for;
Face Value = P120,000,
Time of maturity = 8 years, Market rate = 6% annually
Ans. Fair Price of the bond = P137,585.54
A stock market index is a
measure of a portion of the
stock market.
Index Val Chg % Chg

Val – value of the index PSEi 7,523.93 -14.20 -0.19

Chg – change of the index Financials 4,037.83 6.58 0.16

value from the previous
trading day (i.e., value today Holding Firms 6,513.37 2.42 0.37
minus value yesterday)
% Chg – ratio of Chg to Val Industrial 11,741.55 125.08 1.07
(i.e., Chg divided by Val)
Property 2,973.53 -9.85 -0.33
52-WK HI/LOW – highest/ lowest selling price of the stock in the past 52 weeks
HI/LO – highest/ lowest selling price of the stock in the last trading day
STOCK – three-letter symbol the company is using for trading
DIV – dividend per share last year
VOL (100s) – number of shares (in hundreds) traded in the last trading day. In this case,
stock AAA sold 2,050 shares of 100 which is equal to 20,500 shares.
CLOSE- closing price on the last trading day.
NETCHG- net change between the two last trading days. In the case of AAA, the net
change is 0.10. The closing price the day before the last trading day is P57.29 – P0.10
= P57.19.
Example of a listing on bonds
HIGH/LOW – highest and lowest selling price (in percentage) for the past 52 weeks. In the case of company XXX,
the highest price is 110% of the face value while the lowest is 98% of the face value.

NAME - name of the company; the information also gives the annual interest rate (6% per annum for XXX), and the
maturity year (2020 for XXX)

CUR YLD - current yield (5.1% for XXX)

SALES (1000) - number of traded bonds (in 1000s) in the previous trading day.

WEEKLY HIGH/LOW - weekly high and low, respectively (for XXX these are 110% and
•105%) LAST - closing price of the bond in the previous trading day (for XXX, it is 105%)

NET CHG - net change (in percentage) as compared to last week (for XXX, the price is 5% lower this week; this
means that last week, it was 105% + 5% =110%)
Example: Consider the following listing on stocks
and answer the questions that follow

HI LO STOCK DIV YLD VOL(100) CLOSE CLOSE

NETCHG

120 105 GGG 3.5 2.8 4050 118.50 -0.50

16 12 HHH 0.9 1.1 1070 15.80 0.10

For Stocks GGG and HHH
1. What was the lowest price of the stock for the last 52
weeks?
2. What was the dividend per share last year?
3. What was the annual percentage yield last year?
4. What was the closing price in the last trading day?
5. What was the closing price the day before the last trading
day?
HI LO STOCK DIV YLD VOL(100%) CLOSE CLOSE
NETCHG

120 105 GGG 3.5 2.8 4050 118.50 -0.50

16 12 HHH 0.9 1.1 1070 15.80 0.10
Consider the following listing on stocks and answer
the questions that follow

HI LO STOCK DIV YLD VOL(100%) CLOSE CLOSE

NETCHG

75 65 JJJ 2.5 2.8 1500 70 2

34 23 KKK 1.7 1.75 1200 28 -3

For Stocks JJJ and KKK
1. What was the lowest price of the stock for the last 52
weeks?
2. What was the dividend per share last year?
3. What was the annual percentage yield last year?
4. What was the closing price in the last trading day?
5. What was the closing price the day before the last trading
day?
HI LO STOCK DIV YLD VOL(100%) CLOSE CLOSE
NETCHG

75 65 JJJ 2.5 2.8 1500 70 2

34 23 KKK 1.7 1.75 1200 28 -3
Consider the following listing on stocks and answer
the questions that follow

52 WK 52 WK STOCK DIV YLD VOL(100%) CLOSE CLOSE

HI LO NETCHG

175 50 ABC 3.5 1.8 2500 85 -24.5

80 45 XYZ 1.75 2.75 12000 47 15.5

 Business and
Consumer Loans
Learning Objective
• Illustrate business and consumer loans (M11GM-11f-1).
• Distinguish between business and consumer loans (M11GM-11f-2).
• Solve problems involving business and consumer loans (amortization,
mortgage) (M11GM-11f-3).
• The basic concepts of loans are very familiar to every individual.
Through loans, people, businessmen, entrepreneurs, and even family
persons receive assistance in addressing financial needs from different
lending corporations. Loans is not just limited to borrowing money in a
bank to finance business expansion, but also covers the use of credit
card, amortizing appliances, and many more.
Definition of Terms

• Business Loan – money lent specifically for a

business purpose. It may be used to start a business or
to have a business expansion.
• Consumer Loan – money lent to an individual for
personal or family purpose.
• Collateral – assets used to secure the loan. It may be
real-state or other investments.
• Term of the Loan – time to pay the entire loan.
• Amortization Method – method of paying a loan
(principal and interest) on installment basis, usually of
equal amounts at regular intervals.
• Mortgage – a loan, secured by a collateral, that the borrower is
obliged to pay at specified terms.
• Chattel Mortgage – a mortgage on a movable property
• Collateral – assets used to secure the loan. It may be a real-state or
other investments.
• Outstanding Balance – any remaining debt at a specified time.
identify whether they are consumer or
business loans.

1. Mr. Arcilla plans to have a barbershop. He wants to borrow

some money from the bank in order for him to buy the
equipment and furniture for the barbershop.
• Answer: Business Loan
• 2. Mr. and Mrs. Viloria wants to borrow money from
the bank to finance the college education of their son.
• Answer: Consumer Loan
• 3. Mr. Austria wants to have some improvements on their
10-year old house. He wants to build a new room for their
13-year old daughter. He will borrow some money from
the bank to finance this plan.

• Answer: Consumer Loan

• 4. Mr. Diaz owns a siomai food cart business. He wants
to put another food cart on a new mall in the other city.
He decided to have a loan to establish the new
business.
• Answer: Business Loan
• 5. Irene has a computer shop. She owns 6 computers.
She decided to borrow some money from the bank to buy
10 more computers.

• Answer: Business Loan

Let’s recall
• 6.Mr. Sula borrowed ₱1, 000, 000.00 for the expansion of
his business. The effective rate of interest is 7%. The
loan is to be repaid in full after one year. How much is to
be paid after one year?
 Solution:
• F = P(1+j) !
• Given:
• P = 1, 000 000
" $.$&
• j= = = 0.07
# '
• n= 1
• F = 1,000 000(1+0.07)'
• =1,070,000
• An amount of P 1,070,000 must be paid after one year
 MORTGAGE

• 7. (Chattel Mortgage). A person borrowed ₱1,200,000 for

the purchase of a car. If his monthly is ₱31,000 on a 5-
year mortgage, find the total amount of interest.
Solution:
• Given:
• P = 1,200,000 Monthly Payment = 31,000
• Total amount paid is (1,200,000)(12)(5) = 1,860,000
• Total interest is the difference between the total amount paid and the amount
of the mortgage
• = 1,860,000 – 1,200,000
• = 660,000 (total interest)
• 8. If a house is sold for ₱3,000,000.00 and a bank
requires 20% down payment, find the amount of the
mortgage.
Solution:

• Down payment = down payment rate x cash price

• = 0.20 (3,000, 000)
• = 600,000
• Amount of the loan = cash price – down payment
• = 3,000,000 – 600,000
• = 2,400,000
• The mortgage amount is P2,400,000
Note:

• In this case, the house itself is used as the mortgage property. Also
please take note that the other way to solve this is to directly compute the
mortgage amount by multiplying the cash value of the property by the
percentage of the financed amount, which in this case, 100%-20%=80%.
Thus, the amount of the loan is given by (0.80)(3,000,000)=P2,400,000.
Activity

• 1. If a car loan of Php 790 000.00 requires a 20% down payment. How
much is the mortgage?
• 2. Ms. David bought a car. After paying the down payment, the
amount of the loan is ₱400,000 with an interest rate of 9%
compounded monthly. The term of the loan is 3 years.
• How much is the monthly payment?
Solution:

• Find the regular payment R:

• Given : !
• P = 400, 000
•R = %&(%())&+
[ ]
+
• 𝑖 (45) = 0.09 $%%,%%%
' ("#) 0.08
• = %&(%(,.,,-.)&/0
• j= = = 0.0075 [
/0
]
45 45
• n= 36 • = 12,719.89
• (regular payment)
 Outstanding balance

• Recall that the outstanding balance of a loan is the amount of the

loan at this time. One method to compute the outstanding
balance is to get the present value of all remaining payments.
This method is called the prospective method. We use the
symbol 𝐵9 to denote the outstanding balance after 𝑘 payments.
Outstanding balance

(4:;)%(&%') <4
• 𝐵9 = R [ ]
<;
• Mrs. Villavicencio borrowed some money from a bank
that offers an interest rate of 12% compounded monthly.
Her monthly amortization for 5 years is ₱11,122.22. How
much is the outstanding balance after the 12th payment?
Solution:

• Find: Present value of 48 payments

• Given: (")*)%(&%') +"
• 𝐵( = R [ ]
• R = 11,122.22 +*
(")&.&")%(()%"#) +"
• 𝑖 ("#) = 0.12 • = 11,122.22 [
&.&"
]
% ("#) &."# (".&")%*+
• j= = = 0.01 • = 11,122.22[ ]
"# "# &.&"
• k= 12 (number of payments paid) • = 422,354.73
• n – k = 60 – 12 = 48 • Outstanding Balance
• Mr. and Mrs. Cruz purchased a house and lot worth ₱4,000,000. They paid a
down payment of ₱800,000. They plan to amortize the loan of ₱3,200,000 by
paying monthly for 20 years. The interest rate is 12% convertible monthly.
a. How much is the monthly payment?
b. What is the total interest paid?
c. What is the outstanding balance after 50th payment?
Solution:

• Given:
• P = 3,200,000
• 𝑖 (45) = 0.12
' ("#) 0.45
•j= = = 0.01
45 45
• n = mt = (12)(20) = 240
Find: Regular Payment
• Using the formula: P=R [
!"(!$%)!"
%
]
.
• Then : R= "%("())%&
[ )
]
/,500,000
• = "%("(*.*")%#,*
[ *.*"
]
• = P 35,234.76
• Monthly payment
Find: total interest paid
• Given
• P = 3,200,000 • There are 240 payments of
P35,234.76
• R = 35,234.76
• n = 240 • The total payment is
• =240 x 35,234.76
• = 8, 456,342.40
• Interest amount = Total payments – principal
• = 8,456,342.40 – 3,200,000
• = 5,256,342.40

• The interest amount is P 5,256,342.40

Find : Outstanding Balance after the 50th
payment
!"(!$%)!("!$)
• 𝐵' = R [ ]
%
!"(!$).)!)!(&'(!)()
• 𝐵() = 35,234.76 [ ).)!
]
!"(!.)!)!*+(
• 𝐵() = 35,234.76 [ ]
).)!

• = 2,991,477.63
 ACTIVITY

1. A loan of P300,000 is to be repaid in full time after 2yrs. If the interest rate is 9%
per annum. How much should be paid after 2 yrs?
2. If a car loan of P790,000 requires a 30% down payment. How much is the
mortgage?
3. A business loan worth P250,000 is to repay in quarterly installment for 1 yr. how
much is the quarterly payment if money is worth 8% converted quarterly?
4. Mr.Alfonso is considering to pay his outstanding balance after 6 yrs of payment.
The original amount of the loan is P500,000 payable annually in 10yrs. If the
interest rate is 10%per annum and the regular payment is P81,372.70 annually,
how much is the outstanding balance after the 6th payment?
 ACTIVITY

1. A loan of P300,000 is to be repaid in full time after 2yrs. If the interest rate is 9%
per annum. How much should be paid after 2 yrs? F= P356,430
2. If a car loan of P790,000 requires a 30% down payment. How much is the
mortgage? M = P553,000
3. A business loan worth P250,000 is to repay in quarterly installment for 1 yr. how
much is the quarterly payment if money is worth 8% converted quarterly? R =
P65,655.94
4. Mr.Alfonso is considering to pay his outstanding balance after 6 yrs of payment.
The original amount of the loan is P500,000 payable annually in 10yrs. If the
interest rate is 10%per annum and the regular payment is P81,372.70 annually,
how much is the outstanding balance after the 6th payment? Bk = P257,490.51
Quiz #3: Business Math
Prepare for your Quiz #3: Business Math
Total of 40 points
Types of test:
I. Identification
II. Solving
Scopes:
1. Illustrate stocks and bonds.
2. Distinguishes between stocks and bonds.
3. Describes the different markets for stocks and bonds.
4. Analyzes the different market indices for stocks and bonds
5. Illustrates business and consumer loans.
6. Distinguishes between business and consumer loans.
7. Solves problems involving business and consumer loans.