STOCKS AND BONDS
STOCKS
◦ Companies sell shares of ownership in their company to raise money to finance
operations, plan expansion, and so on. These ownership shares are called stocks. The
buyers of the stock (stockholders) receive stock certificates verifying the number of
shares of stocks they own. The two basic types of stocks are common stock and
preferred stock.
◦ Common stockholders have voting rights. Preferred stockholders do not have voting
rights, but they receive preference over common stockholders in dividends
(payments from profit) and the company’s assets if the company goes bankrupt.
Stock Market provides an orderly trading place for stock wherein prices or market
value vary from day to day and within a day. Only stockbrokers who specialize to
work in the stock market can trade on the floor. The broker receives a commission
for the services of both buying and selling stocks.
BONDS
◦ Sometimes companies raise money by selling bonds instead of stock. When
you buy a stock, you become a part-owner in the company. To raise money,
companies may not want to sell more stocks and thus dilute the ownership of
their current stock owners, so they sell bonds. A bond is a form of long-term
investment issued by a corporation or government where the purchaser
becomes a creditor of the company. It represents a promise from the
company to pay the face amount to the bond owner at a future date, along
with interest payments at a stated rate. The company, state or municipality
that issues the bond is called the issuer.
BONDS
◦ The annual interest paid by the issuer to the lender (bond holder) on the bond
is referred to as the coupon. The coupon rate is the annual payout as
percentage of the bond’s par value. Bonds have two kinds of values. These are
par value and market value. The par value of the bond is the same as its face
value while the market value of a bond is the price at which the bond is being
sold. It may be greater than or less than the amount of the par value. If the
market value is greater than the par value, then the bond is selling at a
premium. If the market value is less than the par value, then the bond is
selling at a discount.
Definition of Terms
◦ Stocks - share the ownership of the 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 stocks market
in the Philippines is governed by the Philippines Stoc 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.
◦ Per Value - the per share amount stated on the company certificates. Unlike
market value, it is determined by the company and remains stable over time.
Shareholder
or Par Value Number of
Stockholder Shares
Certificate
No.
Corporation
issuing the
Certificate
Signatures of
the
Corporations
STOCKS
Dividend = Dividend Percentage x Par Value x Number of shares
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Dividend per share =
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
Stock Yield Ratio= ∙ 100
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
Example 1:
ABC Corporation has declared a total dividend of ₱4,000,000 to be distributed to its
shareholders. The company has 1,000,000 outstanding shares of common stock.
Currently, the market price of each share is ₱150. Find the Dividend per share and stock
yield ratio.
Given:
Total dividend: ₱4,000,000 Dividend per share = ?
Number of shares: 1,000,000 Stock yield ratio = ?
Market value: ₱150
Solution:
𝑇𝑜𝑡𝑎𝑙 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
Dividend Per Share = Stock Yield Ratio= ∙ 100
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
4,000,000.00 4
Dividend Per Share = Stock Yield Ratio= ∙ 100
1,000,000.00 150
Dividend Per Share = ₱4.00 Stock Yield Ratio= 2.67%
Example 2:
XYZ Inc. has announced a dividend of ₱2.50 per share. The company has
2,500,000 shares of stock outstanding. The current market price of the stock is
₱120 per share. Find the Dividend and Stock Yield Ratio.
Given:
Dividend per share: ₱2.50 Dividend = ?
Number of outstanding shares: 2,500,000 Stock Yield Ratio = ?
Market price per share: ₱120
Solution:
Dividend = Dividend Percentage x Par Value x Number of shares
Dividend = 2.50 (2,500,000) = ₱6, 250, 000.00
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
Stock Yield Ratio=
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒
2.50
Stock Yield Ratio= 120 ∙ 100 = 2.08%
Activity
1. GHI Ltd. has announced a dividend of ₱5.00 per share. The company has
1,200,000 shares of stock outstanding. The shares have a par value of ₱100
each, while the current market price of each share is ₱180. What is the total
dividend declared by GHI Ltd.? How about the stock yield ratio?
2. LGP Corporation has declared a total dividend of ₱3,600,000 to be
distributed to its shareholders. The company has 900,000 shares of common
stock outstanding. Each share has a par value of ₱50, but the current market
price is ₱200 per share. Find dividend per share and the stock yield ratio.
