General Mathematics – Grade 11

STOCKS AND BONDS

I. Introductory Concept

This week you are going to learn all about stocks and bonds. It includes
illustrating and distinguishing stocks and bonds and describing and analyzing
different market indices for stocks and bonds.

II. Learning Skills from the MELCs

At the end of this learning packet, the learner will be able to

(1) illustrate stocks and bonds (M11GM-IIe-1).
(2) distinguish between a stock and a bond (M11GM-IIe-2).
(3) describe the different markets for stocks and bonds (M11GM-11e-3).
(4) analyze the different market indices for stocks and bonds (M11GM-11e-4).

III. Learning Activities

LESSON 1. STOCKS AND BONDS

The economic value of debt and equity is called SECURITY. The
security in a form of DEBT is called a BOND and the security in the form of
EQUITY is called STOCK. All the stocks and bonds of a company are two of
its various ASSETS.

A certain company may raise its capital in the form of debt, which is obtained
by borrowing money from the public or private sector, or it may be in the form of equity,
which is obtained from the selling of a portion of a company.

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. As an owner, the stockholder is entitled to
receive a dividend or share of the company's profits. The amount of this dividend may
vary from year to year depending on the company's performance. Well-established
companies try to pay stockholders as high a dividend as possible.

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There are two types of stocks: common stock and preferred stock.
Potential investors who are looking to acquire ownership in a company can choose to
purchase between common versus preferred shares. Companies typically issue and
sell shares to raise funds for multiple business plans. It is important to know and
understand the individual characteristics and differences between common vs
preferred shares before purchasing them.

COMMON SHARES VERSUS PREFERRED SHARES

Characteristics Common Preferred

Company Ownership Yes Yes
Voting Rights Yes No
Dividend variable fixed
Order of Claims to Earnings second first
Returns based on earnings earnings

Owners of common stock may vote for company directors and attend annual
stockholders' meetings. They have the chance to review the company's yearly
performance and its plans and to present their ideas. Owners of preferred stock do not
usually have voting rights or the right to attend stockholders' meetings. They do,
however, have priority when dividends are paid. The dividends on preferred stocks are
paid according to a set rate, while the dividends on common stocks vary according to
the company's operations and performance. If the company does well, however,
preferred stocks do not usually gain in value as much as common stocks. If a company
goes out of business, preferred stockholders are paid off first.
An example of this is the EXPOLOG CORPORATION which needs to build
new buildings in several new locations and buy new equipment. To achieve these
projects the corporation decided to list the company in the Philippine Stock Exchange
thus, offering anyone interested to become stockholders of the corporation’s total
assets.
Stocks can be bought or sold at their 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.
If you buy EXPOLOG CORPORATION stocks, you become one of the many
owners. Being one of the owners, you are entitled to the earnings of the company and
voting rights in the company. You may get your earnings through dividends or you may
opt to sell your stocks at a higher price the moment the market value has increased.

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To explain further the concept of stocks, let us have some illustrations:
Sample problem 1:

Janerians Exporting Company declared a ₱20,000,000 dividend for the

common stocks. If there are a total of ₱600,000 shares of common stocks, how much
is the dividend per share?
Given:
Total Dividend= ₱20,000,000 Total shares = 600,000
Find: Dividend per share
Solution: Dividend per share= Total dividend
Total Shares
= ₱20,000,000/ 600,000
= ₱33.33 per share
Therefore, dividend per share is ₱33.33.

Sample Problem 2:
Buendia’s Equity Ventures declared a 4% dividend on a stock with a par
value of ₱1000. Mr. Roland Coh owns 300 shares of stocks with a par value of ₱500.
How much was the received dividend?

Given:
Dividend Percentage = 4% Par Value = ₱500
Number of Shares = 300 Find: Dividend

Dividend per share is ₱500 x 0:04 = ₱20. Since there are 300 shares, the total
dividend is ₱20/share x 300 shares = ₱6,000. Therefore, the received dividend
was ₱6,000.

Sample Problem 3:

Oragon Incorporated declared a dividend of ₱10 per share for its common
stocks with a current market value of ₱94. While Maisog Ventures declared a ₱16 per
share for its common stock with a current market value of ₱105. Compute for the stock
yield to determine how much dividend shareholders will get concerning the invested
amount.

Solution. Oragon Incorporated: Maisog Ventures

Given: Given:
Dividend per Share = ₱10 Dividend per Share =₱16
Market Value = ₱94 Market value = ₱105
Find: Stock Yield Ratio Find: Stock yield rato
Stock Yield Ratio =Dividend per share Stockyield ratio=Dividend per share
Market value Market value
= ₱10/₱94 = ₱16/₱105

= 0.1064 or 10.64 % = 0.1523 or 15.23%

Maisog ventures have a higher stock yield ratio than Oragon Incorporated.
Each peso you invest in Maisog Ventures would earn you more than Oragon
Incorporated. Therefore, it is wiser to invest in Maisog Ventures.

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Stock yield ratio can be used to compare two or more investments
BONDS
Bonds are interest-bearing security that promises to pay an 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 institution's annual meeting but
are the first to claim in the institution's 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.

An example of this is the NVERSE FUNCTION COMPANY which needs

₱50,000,000 for the expansion of their business. They decided to borrow the money
from a bank. The bank, after a thorough review of the company’s financial standing,
decides to lend the money. It then issues 50,000 bond certificates with a face value of
₱1,000 each with a per annum rate of 6% and a maturity period of 5 years.

If you purchase NVERSE FUNCTION COMPANY bonds, you are the lender to
the company (issuer of the bond). You will be compensated for lending your money by
being paid regular payments (called coupons), usually every six months, aside from
the face value at the end of a certain amount of time.
A Comparison of Stocks and Bonds
STOCKS BONDS
A form of equity financing or raising A form of debt financing or raising
money by allowing investors to be part money by borrowing from investors.
owners of the company.
Stock prices vary every day. These prices Investors are guaranteed interest
are reported in various media (newspaper, payments and a return of their money at
TV, internet, etc.) the maturity date.
Investors can earn if the stock prices Investors still need to consider the
increase, but they can lose money if the borrower’s credit rating. Bonds issued by
stock prices decrease or worse, if the the government pose less risk than those
company goes bankrupt. by companies because the government
has guaranteed funding (taxes) from
which it can pay its loans.
Higher risk but with the possibility of higher Lower risk but lower yield
returns
Can be appropriate if the investment is for Can be appropriate for retirees (because
the long term (10 years or more). This can of guaranteed fixed income) or for those
allow investors to wait for stock prices to who need the money soon (because
increase if ever they go low. they cannot afford to take a chance at the
stock market)

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Both stocks and bonds are issued as a certificate and below are sample
certificates of these.
Example 1: CERTIFICATE OF STOCKS

Source: https://templatelab.com/stock-certificate-templates/

Above is an example of a shareholder certificate, take note of the following

information that can be found in the certificate:
1. The name of the corporation issuing the certificate
ABM COMPANY
2. The name of the country or state where the corporation is incorporated
Philippines
3. The signatories of the corporation
Melchor Aquino (President) and Jose Luna (Secretary)

4. The stock certification number

24
5. The type of stock represented by the certificate
Common

6.Tthe recipient of the stock

JUANA P. RIZAL

7.Tthe number of shares recorded in the certificate

400, 000

8. The par value of the stock

PhP10.00
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ILLUSTRATION: (Please use the data above on the sample shareholder certificate.)
Suppose the corporation published annual earnings of 3%, how much dividend will
the shareholder receive?

Solution:
9. Given: dividend percentage = 3% = (0.03);
par value = ₱10;
number of shares = 400,000

Since the dividend is obtained by multiplying the dividend percentage by the

par value and by the number of the share; then,
Dividend = (0.03)( ₱10.00) (400,000)
= ₱120,000

Example 2:

Source: https://en.wikipedia.org/wiki/United_States_Treasury_security

Above is an example of a bondholder certificate. Take note of the following

information that can be found on the bond certificate.
1. The name of the corporation or government issuing the certificate
United States of America
2. The due date
November 15, 1994
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3. The issuer of the bond
United States of America

4. The price of the bond

$10,000

5. The interest rate

1
10 8 %

6. The frequency of payment of interest per year

2

ILLUSTRATION: Please use the data on example no. 2

How much interest coupons would the bondholder receive per year?

1
7. Given: interest rate = 108% = 0.10125;
price of the bond = $10,000
Since the coupon payment is obtained by multiplying the interest rate by the
price of the bond, then;
Interest coupons = (0.10125)($10,000)
= $1,012.50 per year.

Let’s have another example for a better understanding of bonds .

Boomberry Corporation bond has a face value of ₱100,000 and its maturity date is 10 years
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 = ₱100,000

Coupon Rate r = 5%
Time to Maturity = 10 years
Number of Periods = 2(10) = 20
Market Rate = 4%
Find: Fair Price of the Bond

Amount of semi-annual coupon: ₱100,000(0.05/2) = ₱2,500

The bondholder receives 20 payments of ₱2,500 each, and ₱100,000 at t = 10.
𝐹 100,000
Present value of P100,000: 𝑃 = = = ₱67, 556.42
(1+𝑗)𝑛 (1+0.04)10
Present value of ₱100,000:
Convert 4% to equivalent semi-annual rate:
𝑖2 2
(1 + 0.04)1 = (1 + )
2
𝑖2
=0.019804
2

1−(1+𝑗)−𝑛 1−(1+0.019804)−20
Thus: 𝑃=𝑅 = 2,500 = ₱40,956.01
𝑗 0.019804
Price = 67,556.42 + 40,956.01 = 108,512.43.

Thus, a price of ₱108,512.43 is equivalent to all future payments, assuming an annual market rate of
4%.

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ACTIVITY 1: DANAW or SALOG?
______________
Matching Type: Distinguish the following statement below whether it is a characteristic of a
STOCK or a BOND. Write DANAW if it pertains to stocks and SALOG if it pertains to bonds.
1) _________________It does not have a centralized exchange or trading system.
2) _________________These are issued by public sector authorities, credit institutions,
companies and supranational institution.
3) _________________It is a security in which the authorized issuer owes the holders a
debt and is obliged to repay the principal and interest.
4) _________________Ms. Mara Sandoval bought 500 shares of security in a certain
corporation worth P68 each. Now each share is worth P80.50.
5) _________________Fannae Mae government agency promises to pay a P500,000
security with an interest rate of 4.5 % semi-annually.

ACTIVITY 2:
______________
Below is a shareholder certificate issued by the Atlas Fertilizer Corporation. Using the data
provided in the certificate, answer the following questions. Write your answer on your answer
sheet and show your solutions.

1) Determine the dividend per share if Atlas Fertilizer Corporation declared a

₱160,000 dividend for its ₱8000 shares of common stocks.
Source: https://pinterest.ph/pin/414331234462132405/

______________________________________________________________
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2) Determine the amount of dividend that Ms. Imelda G. Tampingco will have
to receive if the corporations declared a 3% dividend on common stocks.

______________________________________________________________
3) Determine the stock yield ratio if the current market value is ₱48 per
share.

4) Compute for the gains or losses if Ms. Imelda Tampingco sold her share
of stock at ₱14 fair market value of ₱10 par value common stock

ACTIVITY 3: SHOW ME THE MONEY…

______________
Directions: Use the problems below to answer this activity. Compute and show your
solutions. Write your answer on your answer sheet.

PROBLEM 1:
Suppose you own 500 shares of PUREGOLD, Inc. stock which you bought at
₱40 per share. After a year of owning the shares, the company declared 25% annual
earnings of dividend.

PROBLEM 2
Suppose your local cooperative is issuing bonds with a face value of ₱20,000
with an annual coupon interest of 5% which is payable every June 30 and December
31 every year. The bond has a maturity date of 5 years. Since you have enough money
from your savings account, you decided to invest.

Question no.1.In Problem 1, how much dividend are you entitled to receive that year?

___________________________________________________________________

Question no. 2. In Problem 2, how much coupon are you going to receive within one
year?
___________________________________________________________________
___________________________________________________________________

Question no.3. Considering the financial consideration to both securities, which do

you think is the better security to invest in? Show your computations and justify your
answer.

___________________________________________________________________
___________________________________________________________________

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LESSON 2: MARKET INDICES FOR STOCKS AND BONDS

The stock market refers to the public markets that exist for issuing, buying, and selling
stocks that trade on a stock exchange or over the counter. A well-organized and efficient stock
market is considered risky to economic development as it gives companies the ability to
quickly access capital from the public.

PURPOSES OF STOCK MARKET

The stock market serves two very important purposes.

1) Provide capital to companies that they use to fund and expand their businesses.

Example:
A company issues one million shares of stock that initially sell for ₱5 a share, which
provides the company with ₱5 million of capital that it can use to grow its business (less any
fees the company pays for an investment bank to manage the stock offering)
By offering stock shares instead of borrowing the capital needed for expansion, the
company avoids incurring debt and paying interest charges on that debt.

2) Allow investors to share in the profits of publicly-traded companies. Investors can

profit from A) dividends;

A dividend is a share of profits and retained earnings that a company pays out to its
shareholders. Some stocks pay a regular dividend.
,
B) from selling their stocks for a profit if the stock price increases from their
purchase price.

Example:
If an investor buys a share of a company’s stocks at ₱10 per share and the price of
the stock rises to ₱15 per share, then the investor can realize a 50% profit on their investment
by selling their shares

Sample illustration of Philippine stocks (source: investing.com: Philippine stocks)

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STOCK MARKET PARTICIPANTS
Stock market participants can be grouped into the following category. Let’s take a look
at how each participates in the stock market.

1) Philippine Stock Exchange (PSE)

The role of PSE is more than bringing buyers and sellers together and facilitating sales
and purchase of stocks. It enforces rules and regulations that its member (publicly
listed companies and trading participants must have to be strictly followed. Through
this, the PSE fulfills its function as the guardian of the stock market.
The Philippines Stock Exchange plays a vital role in bringing about economic
development by providing a centralized site where companies in need of capital have
easier access to funds through stock investors. Companies can sell their shares
through an initial public offering to potential investors and they can expand their
business to produce goods and services as well to create more jobs. The investing
public can own a part of the company.

2) Publicly Listed Companies

A company becomes publicly listed when its shares are traded in the Philippine Stock
Exchange after a company meets the requirements of the PSE.

3) Trading Participants or Stockbrokers

A stockbroker or trading participant acts as an agent/broker between buyer and seller
of stocks in the stock market. They are licensed by the SEC and is a member of PSE,
authorized to execute orders for purchase or sales of stocks.

4) Stockholders or investors
Investors in stocks or stockholders are those who own shares of stocks of a publicly
listed company, at least until the time that they decide to sell them.

STOCK MARKET INDEX

The Philippine Stock Exchange has three (3) INDEX SERIES used to measure and
analyze the stock market as a whole.
(1) Philippine Stock Exchange Composite Index (PSEi)
This is the major stock market index that marks the performance of the most representative
companies listed in the Philippine Stock Exchange. It is composed of 30 companies properly
selected to represent the general movement of market prices. PSE regularly revises the list,
at least twice a year. The up or down movement in percent change over time can indicate how
the index is performing.
PSEi is computed using a weighted mean of the top 30 publicly traded companies in
the Philippines. It provides a value by which the performance of the Philippine stock is
measured.

Example: Current components of PSEi as of August 17, 2020

(source: Wikipedia: PSE Composite Index
PSE INDEX
Company Code Stock Code
(PSEi) stocks
1 Aboitiz Equity Ventures AEV
2 Aboitiz Power Corporation AP
3 Alliance Global Group AGI
4 Ayala Corporation AC
5 Ayala Land ALI
6 Bank of the Philippine Islands BPI
7 Banco de Oro BDO
8 Bloomberry Resorts Corporation BLOOM

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9 DMCI Holdings DMCI
10 Emperador, Inc. EMP
11 First Gen FGEN
12 Globe Telecom GLO
13 GT Capital GTCAP
14 International Container Terminal Services ICT
15 JG Summit Holdings JGS
16 Jollibee Foods Corporation JFC
17 LT Group LTG
18 Megaworld Corporation MEG
19 Meralco MER
20 Metro Pacific Investments Corporation MPI
21 Metrobank MBT
22 PLDT TEL
23 Puregold PGOLD
24 Robinsons Land RLC
25 Robinsons Retail Holdings RRHI
26 San Miguel Corporation SMC
27 Security Bank SECB
28 SM Investments Corporation SM
29 SM Prime Holdings SMPH
30 Universal Robina URC

(2) Sector Indices

These indices give summaries and benchmarking data of certain sectors or industries.
They allow investors to track stocks against specific sectors. By dividing the businesses and
the economy into a group, they allow the investors to be able to analyze how the economy as
a whole is performing.
Sector indices are composed of Financial, Industrial, Holding Firms, Property,
Services, Mining and Oil.
By tracking the companies you have invested in against the others in the same sector,
you can discover whether the good performance is the result of the individual company’s effort
or the result of a general sector growth.

(3) All Shares Index

This complements everything and it includes all the common stocks of companies listed in the
Philippine Stock Exchange (PSE)
All these indices are used to determine the stock market capitalization, growth and
stability.

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STOCK INDEX TABLES
Stock indices are reported in the business section of magazines or newspapers, as
well as online (http://www.pse.com.ph/stockMarket/home.html). The following table shows
how a list of index values is typically presented.

Source: pse.edge.com.ph ( index summary)

Let us have the meaning of the terms above.

Val – value of the index

This is the value of the share in the stock market.
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)

First, let us have a look at what an index number represents. The numbers always represent
a change from an original or base value. This value represents the weighted average stock
price of all the stock that makes up the index. The movement will give investors an idea of
how the index is performing. The index is calculated on an ongoing basis each day during the
stock market open hours to give investors a sense of direction for the market it represents.

STOCK TABLES
A stock table may look overwhelming at first because of lots of information present,
however, once you can digest each data point and extract insight from the information you are
going to be confident in reading this table. It will give you some clues about the current state
of the company and will help you make a better decision whether to invest or not.

Example of stock table

52- 52- Name (Symbol)/Stock Div Vol Yld P/E Day Net
Wk Wk Last Chg
High Low

21.50 8.00 CloudHighCorp (CHC) 3143 76 21.25 +.25

47.00 31/75 LevelDownInc (LDI) 2.35 2735 5.7 18 41.00 –.50

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25.00 21.00 NetGainInc (NGI) 1.00 1894 4.5 12 22.00 +.10

83.00 33.00 DoingGoodCorp(DBC) 7601 33.50 –.75

To properly read this stock table, you must understand what the terms in every column mean:

52-WK HIGH – This column gives you the highest price that particular stock has reached in
the most recent 52 weeks period.

52-WK LOW – This column gives you the lowest price that particular stock has reached in the
most recent 52 weeks period.

HI/LO – highest/ lowest selling price of the stock in the last trading day

NAME AND SYMBOL/STOCK –This column tells you the company name and the stock
symbol assigned to it. This Three-letter symbol of the company is used for trading and all
stocks communication.

DIV –Dividend per share last year. A value in this column will tell you the annual dividend
quoted if you owned the share of that particular stock.

VOL (100s) – VOLUME. This column tells you how many shares of that particular stock were
traded that day. In this case, CHC sold 3,143 shares of 100 which is equal to 314,300 shares.

YIELD- This column refers to what percentage that particular dividend is to the stock price.
This is calculated by dividing the annual dividend by the current stock price.

P/E- This indicates the ratio between the price of the stock and the company’s earnings. This
is called earnings multiple which is used to determine whether a stock is a good value.

DAY LAST OR CLOSE- This column will tell you how a particular stock ended in trading on
that day.

NETCHG- Net change between the two last trading days. This will answer the question” How
did the stock price end today compare with its trading price at the end of the prior trading day?

In the case of CHC, the net change is 0.25. The closing price the day before the last
trading day is ₱21.25-0.25 = 21.00

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ILLUSTRATION: Let us have an example. Consider the stock table below and answer the
questions that follow:

52 Weeks

HI LO STOCK DIV YLD% VOL (100s) 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 on the last trading day?
5. What was the closing price the day before the last trading day?

Answers:
For Stock GGG:
1. Lowest Price = ₱105.00
2. Dividend per Share = ₱3.50
3. Yield% = 2.8%
4. Closing Price = ₱118.50
5. Closing Price (the day before the last trading day) = ₱118.50 – (- 0.50) = ₱119.00

For Stock HHH:

1. Lowest Price = ₱12.00
2. Dividend per Share = ₱0.90
3. YLD% = 1.1%
4. Closing Price = ₱15.80
5. Closing Price (the day before the last trading day) = ₱15.80 - ₱0.10 = ₱15.70

BUYING OR SELLING STOCKS

Buying and selling stocks is not as complicated as it seems but you have to do some
reading and research. Before you make your first investment.
The concept of buying and selling stocks in the stock market is like an auction house
in where the stock market enables the buyers and sellers to negotiate prices and make trades.
To buy or sell stocks, you may go to the Philippine Stock Exchange (PSE) personally.
However, most transactions nowadays are done through a phone call to a registered broker
or by logging on to a reputable online trading platform.

Example of Stock Quote

Bid Ask/Offer
Size Price Price Size
110 334,000 21.6000 21.8000 18,000 1
8 71,700 21.5500 21.9000 183,500 4
32 345,500 21.5000 22.1500 5,100 1
3 11,500 21.4500 22.2500 11,800 4
7 12,200 21.4000 22.3000 23,400 6

Initially, stock quotes can look confusing, but once their components are broken down,
they provide a valuable snapshot of a company.
Let’s first understand the data and what each of the points represents.
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Bid Size –This represents the number of shares that investors are willing to purchase
at a specified bid price.

Bid Price – This stands for the highest price that a buyer is willing and able to purchase
for a share of stock.

Ask Price – This is the lowest price that a seller is willing and able to offer for sale for
a share of stock.

Ask Size – This is the number of individual sell orders which have been placed in the
online platform and the total number of shares the sellers wish to sell.

Let us have a sample of how to read the stock quota table above. The first row under
Bid means that there are a total of 110 traders who wish to buy a total of 334,000 shares at
₱21.60 per share. On the other hand, the first row under Ask means that just one trader is
willing to sell his/her 18,000 shares at ₱21.80 per share.

BOND MARKET INDICES

A bond market index is a measure of a portion of the bond market. It is a tool used
by many investors and financial managers to describe the market and to compare the return
on specific investments.
Most investors are more familiar with stock indices than bond market indices. While a
stock market index is a weighted average made up of the prices of selected stocks, a bond
index is made up from the prices of selected bonds, Mutual Funds, and Exchange-Traded
Funds are some of the more popular stock indices investors are familiar with.

The main platform for bonds or fixed-income securities in the Philippines is the
Philippine Dealing and Exchange Corporation (or PDEx). PDEX is licensed by the
Securities and Exchange Commission as an exchange under the provision of the Securities
Regulation Code.
Unlike stock indices which are associated with virtually every stock market in the
world, bond market indices are far less common. Other than certain regional bond indices
which have subindices 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 that may be used as benchmarks for other financial instruments.

THE BOND MARKET

The bond market is often called the debt market, fixed income market, or credit market.
This is the collective name given to all trades of issues of debt securities. Governments
typically issue bonds to raise capital to pay their debts or fund infrastructural improvements.
However, private companies, issue bonds to raise capital for ongoing operations, increase
their product lines, or expand their operations and open for new locations.

Bonds are either issued on the Primary market and the Secondary market. In the
primary market, transactions occur directly between the bond issuer and the bond buyer. They
created brand-new debt securities that have not been previously offered to the public.

In the secondary market, securities that have already been sold in the primary markets
are then bought and sold at later dates. Investors can purchase these bonds from a broker,
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who acts as an intermediary between the buying and selling parties. These may be in the form
of pension funds, mutual funds, and life insurance policies, and other same product structures.

Although the coupon rate for bonds is fixed, bond prices fluctuate because they are
traded among investors in what is called the secondary market. These prices are determined
by supply and demand, the prevailing interest rates, as well as other market forces. 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 gains even before maturity.

Although 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. Bond investors should
thus be aware of the financial condition of the issuer of the bond and prevailing market
conditions.

TYPES OF BOND MARKETS

(1) Corporate Bonds- Private companies that are publicly listed on the stock exchange,
issue corporate bonds to raise money for subsequent reasons, such as financing
current operations, expanding product lines, expanding and opening new facilities and
equipment. This type of bond usually has a maturity date of at least one year.

Examples of companies in the Philippines regularly issuing corporate bonds include

Ayala Corporation, Globe Telecom, JG Summit Corporation, Filinvest Land, and many more.

(2) Government Bonds- These are the national government bonds or treasuries. It
encourages buyers by paying out the face value listed on the bond certificate, on the
agreed maturity date, while also issuing periodic interest payments along the way. This
attracts conservative investors.

Why does the government issue bonds?

The Philippine government issues them to raise funds. These funds are used for many
different purposes. This may be used for payment national debts or sustain social services
such as education, healthcare, agriculture, and anti-poverty initiatives. The money that is
gathered may also be used towards different infrastructure projects such as the construction
of roads, and fund law enforcement or national defense.

Different government securities

Government bonds are issued by the Philippine government through the Bureau of
Treasury, that is why it is called treasury bonds. These bonds are offered in two different
ways:
a) through auction in which the bonds are held for bidding commonly to institutional
investors who would make it available to the general market.
b) through selling directly to the investing public without going through the bidding
process.
Examples are Premyo bonds that were issued in the last quarter of 2019.
Government or treasury bonds are considered to have minimal risk because it is
backed by taxpayers. The risk of default is relatively low.

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Difference of government securities
SECURITY CURRENCY TENOR PAYMENT

Treasury bills Php 91 – 364 days None

Fixed Rate Treasury Note Php 2 – 23 years Semi-annually

Retail Treasury Bonds Php 2 – 24 years Quarterly

Republic of the Philippines Bond USD 3 – 25 years Varies

Source:pesolab.com:investing in Philippine bond, a beginner guide

● Treasury bills are shorter in the term, usually less than 1 year. Interest is not paid,
instead, the bills are priced at a discount. Your income is derived from the difference
between the discounted price you paid and the full amount that the government pays
back, which is called “spread”.
Example: You can get a treasury bill for ₱900, and then when it matures you’d get
paid ₱1000. The ₱100 difference (1000-900) is the spread and your gain.
● Fixed Rate Treasury Notes (FXTN) pay semi-annual interest or as described during
the offer.
● Retail treasury bonds (RTB) are longer than FXTNs. They usually carry quarterly
interest payments.
● Republic of the Philippines (ROP) bonds are dollar-denominated debt instruments.
(3) Municipal Bonds- These are locally issued by states, cities, special purpose districts,
public utility districts, school districts, publicly owned airports, and seaports, and other
government-owned entities which seek to raise cash to fund various projects.
Municipal bonds backed by the full taxing power of the municipality are called
a General Obligation Bond.
Bonds issued by the municipality to finance a government project whose interest and
principal payments are dependent on the income of that project are called Revenue Bonds.
Examples of municipal bonds are the Puerto Princesa Green Bonds, Boracay-Aklan
Provincial Bonds, and Tagaytay City Tourism Bonds.

(4) Mortgaged-Backed Bonds- These consist of pooled mortgages on real state

properties which are locked in by the pledge of particular collateral assets. They pay
monthly, quarterly, or semi-annual interest. This is similar to a bond that is made up
of a bundle of homes loans bought from the banks that are issued to them.
Example of Mortgaged -Backed Bonds is a bank that lends a borrower the money to
buy a house and collects monthly payments on the loan.

(5) Emerging Market Bonds – These bonds are issued by governments and companies
located in emerging market economies. These bonds provide much greater growth
but also a greater risk.

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How can you invest in Philippine bonds?

There are many ways to acquire bonds depending on the timing:

Within offer period – which can be acquired through Bureau of the Treasury and
authorized partners,
Outside of offer period- which can be invested through the secondary market and
bond funds.
● Through the Bureau of the Treasury and authorized partners
If the treasury and corporate bonds are within the offer period, you can acquire them through
the Bureau of the Treasury or authorized partners, which are usually banks and investment
houses.
● Through Secondary market
You can do so through the secondary market, which is the Philippine Dealings and Exchange
Corporation (PDEX). You would need to open an account with brokers, and fees are going to
be charged when you trade through them.
Example:
1. Allied Banking Corporation
2. Asia United Bank
3. Asiatrust Development Bank
4. Banco de Oro Unibank, Inc.
5. Bank of Commerce

● Buy bond funds

You can own through bond funds. Bond funds are investment funds that are managed on
your behalf, therefore, you will not be needing to spend the time or learn the skills in trading
them. You can open any of the following accounts: mutual funds, unit investment trust funds
(UITF), Personal Equity and Retirement Account (PERA), or variable universal life (VUL)
policy.

ADVANTAGES AND DISADVANTAGES OF INVESTING IN BONDS

ADVANTAGES DISADVANTAGES

● Fixed income. The issuer is going to pay ● Taxable. Whatever you earn from them
predictable interest periodically. is subject to a tax of 20%.

● Less volatile. Interest is already known ● Risk of default, also called credit risk,
and fixed from the beginning compared to is a situation where the company cannot
holding stock in which the value is hard to pay the interest on the due date or the
predict its future price. principal amount on maturity. Credit
rating companies exist to assess the
creditworthiness of the companies that
issued bonds.

● Comparatively less risky. If a ● Interest rate risks. When the interest

company goes bankrupt, whatever rate (which is set by the Bangko Sentral
assets it has left will be liquidated to pay ng Pilipinas) increases, the yield that
you get from bonds decreases. That is
its debts
because the new and higher interest
rate becomes more attractive than the
interest given by long-term bonds.

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● Liquid. If you want to get your capital ● Liquidity risks. There might also be a
back before the term ends, you can do concern on how quickly you can trade
so by selling your holdings on the (buy or sell) the bonds to the second
secondary market. market particularly when yields are not
attractive due to the high-interest rate.
● Interest is better than banks. Income that ● Inflation risk. When inflation spikes, the
you can potentially derive from bonds purchasing power of the fixed income that
through interest payment is higher than the you get is lessened.
ones provided by bank accounts such as
savings or time deposits.

● Reinvestment risks. When the central

bank lowers the interest rate, your
earnings when you reinvest the fixed
income derived from bonds may also be
less.

ACTIVITY 1
____________
__
Directions: Match the description in column A with the correct term in column B. Write your
answer on your answer sheet.

Column A Column B

1. A measure of a portion of the bond market a. stock market index

2. The number of individual buy orders and the b. bid price

total number of shares they wish to buy

3. The price which the buyers are willing to pay for c. PDEx
the stock

4. A measure of a portion of the stock market d. bond market index

5. Main platform for bonds or fixed income e. bid size

securities in the Philippines f. treasury bills

g. emerging market fund

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ACTIVITY 2
___________
___
Directions: Consider the following listing on stocks. Answer the questions that follow.
52 Weeks

HI LO STOCK DIV YLD% VOL (100s) 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 on the last trading day?
5. What was the closing price the day before the last trading day?

ACTIVITY 3
___________
___
Direction: Given the following listing on stocks, answer the questions that follow:
52 Weeks

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

50 35.8 AAB .40 1.2 2000 57.29 1.3

43.5 37 BBA .35 1.9 1200 40.70 -0.5

1. What was the dividend per share last year for stock AAB?
2. What was the closing price on the last trading day for stock BBA?
3. For stock AAB, what was the closing price the day before the last trading day?
4. What was the annual percentage yield last year for stock BBA?
5. For stock BBA, how many shares were traded in the last trading day?

IV. Rubric for Scoring

ACTIVITY 1 ACTIVITY 2 ACTIVITY 3

1 point for every Correct Answer

V. Reflection

Direction: Answer the following questions.

1. How much did you know about the topic before the discussion?
2. In what way/s is/are the lesson in stocks and bonds important to your plans in the
future?

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VI. Answer Key

Lesson 1 Lesson 2
Activity 1 Activity 1
1. SALOG 1. D 2. E 3. B 4. A 5. C
2. SALOG
3. SALOG Activity 2
4. DANAW For stock JJJ
5. SALOG 1. P 65.00
2. P 2.50
Activity 2 3. 2.8%
1) P20 per share 4. P 70.00
2) P135 5. P 68.00
3) P6.25%
4) P 1,800 gains For stock KKK
1. P 23. 00
Activity 3 2. P 1.70
1. P5,000 3. 1.75%
2. P1,000 4. P 28.00
3. To invest in PUREGOLD 5. P 31.00

Activity 3
1. P 0.40
2. P 40.70
3. P 55.99
4. 1.9%
5. 120,000 shares

VII. References

Crisologo, Leo Andrei A., et. al. 2016, General Mathematics Teaching Guide

Corporate Finance Institute (CFI), Common vs Preferred Shares, October 6, 2020,

retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/common-
vs-preferred-shares/

ForexCEC, Philippine Stocks, October 7, 2020, retrieved from

ph.investing.com/equities/Philippines

Goodman, Jordan. Stocks and Bonds, October 6, 2020, retrieved from

https://scholastic.com/teachers/teaching-content/stocks-and-bonds/

Investopedia, Investing Essentials, October 7, 2020, retrieved from

https://investopedia.com/terms/s/stockmarket.asp

Jonas, James Ryan. October 29, 2009, Bond Investing Guide: Types of Bonds,
retrieved from pinoymoneytalk.com/types-bond-investments/

Sector Indices, October 7, 2020, retrieved from capital.com/sector-indices-definition

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Tracy, Paul. Market Definition, October 6, 2020, retrieved from https://markets-
today.info/sites/investinganswers.com

DEVELOPMENT TEAM OF THE LEARNING ACTIVITY SHEET

Writers : ARABELLA B. MENDEZ - Baao NHS

MARICRIS B. RICAFRENTE - Calabanga NHS
RAQUEL C. BORONDIA -
Reviewer : JOHN EMMANUEL R. IBE – Magarao NHS
Editor : JUMAR R. VELASCO – Ragay SMOHS
Lay-out Artist : JHOMAR B. JARAVATA – Bula NHS
Validators : MICHEL C. BISUÑA - Gainza NHS
Language Editor: DANNY BOY B. NACARIO - Baao NHS

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