KIDAPAWAN CITY DIVISION

KIDAPAWAN CITY NATIONAL HIGH SCHOOL

SENIOR HIGH SCHOOL DEPARTMENT

SIMPLIFIED SELF-LEARNING MODULE IN GENERAL MATHEMATICS

Basic Concepts of Stocks and Bonds
Quarter 2 Module 5

Name: ___________________________________________ Grade and Section: __________________

School: __________________________________________ LRN: _____________________________
Subject Teacher: __________________________________

I. OBJECTIVES
1. Illustrate stocks and bonds. M11GM-IIe-1
2. Distinguish between stocks and bonds. M11GM-IIe-2
3. Describe the different markets for stocks and bonds. M11GM-IIe-3
4. Analyze the different markets indices for stocks and bonds. M11GM-IIe-4
5. Interpret the theory of efficient markets. M11GM-IIe-5

II. SUBJECT MATTER/ TOPIC AND CURRICULUM GUIDE

a. Content Standard: Basic Concepts of Stocks and Bonds
b. Performance Standard: Use appropriate financial instruments involving stocks and bonds in formulating
conclusions and making decisions.
c. References: Teaching Guide for SHS Gen Math pp.237-252, Gen Math Learner’s Material pp.208-224

III. PROCEDURE
Activity 1. Explore the sample stock and bond certificates, and then answer the following:

1. What is the name of the corporation issuing

the certificate?
2. What is the stock certification number?
3. What type of the stock is represented by the
certificate?
4. Who is the recipient of the stock?
5. What is the par value of the stock?
6. How many shares are declared to the
recipient?

7. What is the name of the bond issuer?

8. What is the unique certificate identification
number?
9. What is the bond par value/ face value?
10. What is the interest rate?
11. When is the maturity date?

Stocks

Is it possible for you to be part owners of the big companies in the Philippines like Ayala Corp.,
Metropolitan Bank and Trust Co., Manila Electric Co., and the like? The answer is Yes!
Some corporations may raise money for their expansion by issuing stocks. Stocks are shares in the
ownership of the company or corporation. By buying stocks of a certain company, you become one of the many
owners and you are entitled to the earnings of the company.
Owners of stocks may be considered as part owners of the company. There are two types of stocks:
common stock and preferred stock. Both will receive dividends or share of earnings of the company. Dividends
are paid first to preferred shareholders. The amount of dividend received by each stockholder is based on par
value and not on the market value.
Owners of the company may opt to sell their stocks at a higher price the moment the market value has
increased. Stocks can be bought or sold at its current price called the market value. When a person buys some
shares, the person receives a certificate with the corporation’s name, owner’s name, number of shares and par
value per share.
SSLM Writers:
Lavin S. Blanco, Jennylee V. Pun-an, Jeasza May Claire J. Porras
Nixon B. Barrete, Nicanor D. Butal, Edmund H. Hernandez
Page 1 of 6 General Mathematics
Grade-11
The following scenarios are examples related to stocks.
1. Five years ago, Ms. Salceda bought 500 shares of stocks in a certain corporation worth Php 48.00 each. Now,
each share is worth P60.50.
2. Mr. Tagle bought 1,000 shares of stocks in a corporation that had issued 100,000 shares. This means Mr. Tagle
acquired 1% of the total shares.
3. A certain corporation declared to give Php 100,000,000 dividend to the common stockholders. If there are
1,000,000 shares, then there will be Php 100 dividend per share

Bonds
Have you ever thought you could fund big companies or even the government? Big companies or the
government often need large amounts of money for their projects. To raise money, they can issue bonds.
Investors who purchase bonds are essentially 'lenders' to the issuer. However, the investors should be
compensated for the lending their money. Aside from being paid the loan at the end of a fixed amount of time,
the investor also receives regular payments (called coupons), usually every six months.
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 institution which may
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.
Bondholders do not vote in the institutional annual meeting but the first to claim in the institutional
earnings. On the maturity date, the bondholders will receive the face amount of the bond. Aside from the face
amount due on the maturity date, the bondholders may receive coupons (payments/interests), usually done
semi-annually, depending on the coupon rate stated in the bond certificate.

The following scenarios are examples related to bonds.

1. Ms. Ante bought a 10% bond for Php 100,000. After 10 years, she receives Php100,000 back. She also receives
(𝑃ℎ𝑝 100,000)(0.10)
= 𝑃ℎ𝑝 5,000 every six months for 10 years.
2
2. Mr. de la Cruz is offered an 8% bond for Php 50,000. The bond has a face value of Php 50,000 with maturity date
(𝑃ℎ𝑝 50,000)(0.08)
exactly 5 years from now. He receives = 𝑃ℎ𝑝 2,000 every six months for 5 years.
2

The coupon rate is used only for computing the coupon amount, usually paid semi-annually. It is not
the rate at which money grows. Instead, current market conditions are rejected by the market rate, and are used
to compute the present value of future payments

Stocks VS Bonds
Basis for Stocks Bonds
Comparison
Meaning A form of equity financing or raising A form of debt financing or raising money by borrowing
money by allowing investors to be part from investors.
owners of the company.
Stock prices vary every day. These Investors are guaranteed interest payments and a return
prices are reported in various media of their money at the maturity date.
(newspaper, TV, internet etc.
Investors can earn if the stock prices Investors still need to consider the borrower’s credit rating.
increase, but they can lose money if the Bonds issued by the government pose less risk than those
stock prices decrease or worse, if the by companies because the government has guaranteed
company goes bankrupt. funding (taxes)from which it can pay its loans.
Who are the Corporate Government Institutions, Financial Institutions, Companies
issuers? etc.
Status of Shareholders are the owners of the Bondholders are the lenders to the company.
Holders company.
Form of Returns Profits earned by the company are paid Interest payments are made in the form of Coupon
in the form of Dividends Payments.
Risk Level Higher risk but with possibility of higher Lower risk but lower yield.
returns.
Can be appropriate if the investment is Can be appropriate for retirees (because of the guaranteed
for the long term (10 years or more). This fixed income) or for those who need the money soon
can allow investors to wait for stock (because they cannot afford to take a chance at the stock
prices to increase if ever they go low. market).
Additional Shareholders get the right to vote. Bondholders get the preference in terms of repayment and
Benefit also on liquidation.

Definition of Terms in Relation to Stocks

• Annuity – a sequence of payments made at equal (fixed) intervals or periods of time.
• Stock - 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. 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.

Page 2 of 6
Example 1 Example 2

A certain financial institution declared a A certain corporation declared a 3% dividend on a stock with a
Php 30,000,000 dividend for the par value of ₽500. Mrs. Lingan owns 200 shares of stock with a
common stocks. If there are a total of par value of ₽500. How much is the dividend she received?
700,000 shares of common stock, how
much is the dividend per share? Given: Dividend Percentage = 3%
Par Value = ₽500
Given: Total Dividend = 30,000,000 Number of Shares = 200
Total Shares = 700,000 Find: Dividend
Find: Dividend per Share
Solution:
Solution:
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 𝑖𝑠: ₽500 𝑥 0.03 = ₽15
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 =
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 Since there are 200 shares, the total dividend is:
₽15 per share x 200 shares = ₽3,000
30,000,000 In summary,
=
700,000
Dividend = (Dividend percentage)x(Par Value)x(No. of Share)
= 𝟒𝟐. 𝟖𝟔 = (𝟎. 𝟎𝟑)(𝟓𝟎𝟎)(𝟐𝟎𝟎)
Example 3 = ₽3,000
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.

Solution: Corporation A Corporation B

Given:
Given:
Dividend per Share = ₽8
Dividend per Share = ₽12
Market Value = ₽52
Market Value = ₽95
Find: Stock Yield Ratio
Find: Stock Yield Ratio
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
SYR = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 SYR =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
8
= 12
52 =
95
= 0.1538 = 𝟏𝟓. 𝟑𝟖%
= 0.1263 = 𝟏𝟐. 𝟔𝟑%
Note: Corporation A has a higher stock yield ratio than corporation B. Thus, if all other things are equal,
then it is wiser to invest in Corporation A.

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 received semi-annually
• Coupon Rate - the rate per coupon payment period; denoted by r
• Price of a Bond - the price of the bond at purchase time; denoted by P
• Bond - interest-bearing security which promises to pay
• 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 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 that pays 10%,
payable semi-annually for its coupons.
Given: Face Value F = 300,000
Coupon Rate r = 10%
Find: Amount of the semi-annual coupon
Solution: Annual coupon amount = 300,000 (0.10) = 30,000
Semi-annual coupon amount = 30,000 (1/2) = 15,000
Note: The coupon rate is used only for computing the coupon amount, usually paid semi-
annually. 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.
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Example 5

Suppose that a bond has a face value of P100,000 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 rate
is 4%.

Given: Face Value F = P100,000

Coupon rate = 5%
Time to Maturity = 10 years
Number of Periods = 2(10) = 20
Market rate = 4%
Find: Fair Price of the Bond
(present value of all cash inflows) Present value of semi-annual coupon:
Solution: Convert 4% to equivalent rate:
The bondholder will receive P100,000 at t=10. 𝐹1 = 𝐹2
Present value of P100,000 face value:
2
𝑖2 0.04 1
(1 + 2 ) = (1 + )
𝐹 1
𝑷= 2( )
1
1
(1 + 𝑟)𝑡 𝑖2 2
(1 + ) = (1 + 0.04)1(2)
2
1
100,000 𝑖2
𝑷= 𝑗= 2
= (1.04)2 − 1
(1 + 0.04)10 𝒊𝟐
𝒋= = 𝟎. 𝟎𝟏𝟗𝟖𝟎𝟑𝟗𝟎𝟐𝟕
𝟐
𝑷 = 𝑷𝒉𝒑 𝟔𝟕, 𝟓𝟓𝟔. 𝟒𝟐 Thus,
1 − (1 + 𝑗)−𝑛
Amount of semi-annual coupon: 𝑃=𝑅
𝑗
−20
0.05 1 − (1 + 0.0198039027)
100,000 ( 2 )=2,500 𝑃 = 2,500
0.0198039027
Thus, the bondholder receives 20 payments
of P2,500 each. 𝑷 = 𝑷𝒉𝒑 𝟒𝟎, 𝟗𝟓𝟓. 𝟖𝟓

Thus, the Fair Price of the Bond is:

Price = 67,556.42 + 40,955.85

= 𝑷𝒉𝒑 𝟏𝟎𝟖, 𝟓𝟏𝟐. 𝟐𝟕

Activity 2. The table below shows the data on 5 stockholders. Find the dividend of the 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

Market Indices for Stocks and Bonds

A 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 general movement of market
prices.

Stock Index Tables

Stock indices are reported in the business section of magazines or newspapers, as well as online
(https://pse.com.ph/stockMarket/home.html). The following table shows how a list of index values is typically
presented (values are hypopthetical).
Index Val Chg %Chg
PSEi 7,523.93 -14.20 -0.19
Financials 4,037.83 6.58 0.16
Holding Firms 6,513.37 2.42 0.037
Industrial 11,741.55 125.08 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 terms mean the following:

• Val – value of the index
• Chg – change of the index value from the previous trading day (i.e. value today minus value
yesterday)
• %Chg – ratio of Chg to Val (i.e., Chg divided by Val)
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Stock Tables

Newspapers or magazines may also report on stock prices of individual companies. The following table
shows how information about stocks can be presented (values are hypothetical).

52-WK 52-WK
HI LO STOCK HI LO DIV VOL(100s) CLOSE NETCHG
94 44 AAA 60 35.5 .70 2050 57.29 0.10
88 25 BBB 45 32.7 .28 10700 45.70 -0.2

In the table above, the terms mean the following:

• 52-WK HI/LO – 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.)

Buying or Selling Stocks

To buy or sell stocks, one may go to the PSE personally. However, most transactions nowadays are done
by making a phone call to a registered broker or by logging on to a reputable online trading platform. Those with
accounts in online platforms may often encounter a table such as the following:

Bid Ask/ Offer

Size Price Price Size
122 354,100 21.6000 21.8000 20,000 1
9 81,700 21.5500 21.9000 183,500 4
42 456,500 21.5000 22.1500 5,100 1
2 12,500 21.4500 22.2500 11,800 4
9 14,200 21.4000 22.3000 23,400 6

In the table above, the terms mean the following:

• Bid Size – the number of individual buy orders and the total number of shares they wish to buy
• Bid Price – the price these buyers are willing to pay for the stock
• Ask Price – the price the sellers of the stocks are willing to sell the stock.
• Ask Size – how many individual sell orders have been placed in the online platform and the total number
of shares these sellers wish to sell.

For example, the first row under Bid means that there are a total of 122 traders who wish to buy a total of 354,100
shres at P21.60 per share. On the other hand, the first row under Ask means that just 1 trader is willing to sell his 20,000
shares at a price of P21.80 per share.
Bond Market Indices

Definition: A Bond market index is a measure of a portion of the bond market.

The main platform for bonds or fixed income securities in the Philippines is the Philippine Dealing and Exchange
Corporation (or PDEx). Unlike stock indices which are associated with virtually every stock market in the world, bond market
indices are far less common. In fact, other certain regional bond indices which have sub-indices covering the Philippines, our
bond market does not typically compute a bond market index. Instead, the market rates produced from the bond market are
interest rates which may be used as benchmarks for other financial instruments.

The Bond Market and Government Bonds

Government bonds are auctioned out to banks and other brokers and dealers every Monday by the Bureau of
Treasury. Depending on their terms (or tenors), these bonds are also called treasury bills (t-bills), treasury notes (t-notes), or
treasury bonds (t-bonds). The resulting coupon rates and the total amount sold for these bonds are usually reported by news
agencies on the day right after the auction. Since these bond transactions involve large amounts, these bonds are usually
limited to banks, insurance firms, and other financial institutions. As the price of the bond may increase or decrease, some
investors may choose to sell back to banks the bonds they acquired before their maturity to cash in their grains even before
maturity. Despite the fact that bond investing is considered safer than stock investing, there is still some risk involved. The
most extreme scenario is default by the issuer. In this case, the investor can lose not only the coupons, but even the money
invested in the bond.
Theory of Efficient Markets
Definition of Terms:
• Fundamental analysis – analysis of various public information (e.g., sales, profits) a bout a stock
• Technical Analysis – analysis of patterns in historical prices of a stock
• Weak Form of Efficient Market Theory – asserts that stock prices already incorporate all past
market trading data and information (historical price information) only
• Semistrong Form of Efficient Market Theory – asserts that stock prices already incorporate all
publicly available information only
• Strong Form of Efficient Market Theory – asserts that stock prices already incorporate all
information (public and private)
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 The theory of efficient markets was developed by Eugene Fama in the 1970s. It says that stock prices
already reflect all the available information about the stock. This means that stock prices are ‘accurate’ – they
already give a correct measure of the value of a stock precisely because the prices are already based on all
information and expectation about the stock.
The slogan ‘Trust market prices!’ can sum up the theory. One can trust market prices because they
give an accurate measure of all possible information about the stock. Since all stocks are ‘correctly priced’, then
there is no such thing as discovering undervalued or overvalued stocks from which to gain profits.

IV. ASSESSMENT
Multiple Choice: Choose the letter of the correct answer.
_____ 1. Which of the following is a form of equity financing or raising money by allowing investors to be part owners of
the company?
A. bond B. fund C. share D. stock
_____ 2. Which of the following is a form of debt financing, or raising money by borrowing from investors?
A. bond B. fund C. share D. stock
_____ 3. What is a form of raising money in which investors are guaranteed interest payments and a return of their
money at the maturity date?
A. bond B. fund C. share D. stock
_____ 4. What is called a place where stocks can be bought or sold?
A. company B. corporation C. stock exchange D. stock market
_____ 5. Which of the following is the amount payable on the maturity date?
A. assimilation B. face/ par value C. fair price of the bond D. term of the bond
_____ 6. What is called the periodic interest payment (usually semi-annually) that the bondholder receives?
A. coupon B. coupon rate C. dividend D. market value
_____ 7. Which of the following is a ratio used to compare a stock’s market value to its book value?
A. dividend yield ratio B. price earning ratio C. price to book ratio D. stock yield ratio
_____ 8. What is known as the present value of all cash inflows to the bondholder?
A. fair market value B. fair price of the bond C. market value D. par value
_____ 9. A food corporation declared a dividend of P25,000,000 for its common stock. Suppose there are 180,000
shares of common stock, how much is the dividend per share?
A. 108.66 B. 128.12 C. 138.89 D. 142.17
_____ 10. In a stock table, what term/ symbol represents the closing price on the last trading day?
B. CLOSE B. DIV C. HI/ LO D. VOL
_____ 11. What term represents the number of individuals who buy orders and the shares they wish to buy?
A. ask price B. ask size C. bid price D. bid size
_____ 12. What term represents the price the sellers of the stocks are willing to sell the stock?
A. ask price B. ask size C. bid price D. bid size
_____ 13. The weak form of the theory of efficient markets asserts that all __________ price information are
incorporated in the price of stocks.
A. past B. present C. future D. future value
_____ 14. The __________ form of the theory of efficient markets asserts that all information (public and private) are
incorporated in the price.
A. weak B. semi-storng C. storng D. very strong
_____ 15. The __________ form of the theory of efficient markets asserts that only all publicly available information is
incorporated in the price.
A. weak B. semi-storng C. storng D. very strong

V. ENRICHMENT
Answer the following problems by showing your solutions.
1. Juan owns 1,500 shares in Company X at Php 960 per share. She also owns 12,000 shares in company Y
at Php 115 per share. In which company is the total value of her share greater?
2. Which of the coupons has a greater semi-annual amount?
Coupon A: Php 110,000 bond which pays 4.5% convertible semi-annually.
Coupon B: Php 120,000 bond which pays 3.8% convertible semi-annually.
3. A certain land developer declared a dividend of P28 per share for the common stock. If the common stock
closes at P99, how large is the stock yield ratio on this investment?

KEY TO ANSWERS
E. 1,015 6. 200
D. 524.15 11. May 21, 2020 5. Php 50
C. 262.50 10. 10% 4. Nathaniel A. Galopo
B. 198 9. Php 500 3. Capital Stock
A. 150 8. 1756 2. 25
Dividend=Div%xPar valuexNo.of Shares 7. Penpen De Sara Pen Corporation 1. X-Squared Corporation
Activity 2 Activity 1
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