QUARTER 2,

WEEK 5
 Lesson 1

Learning Competency: Illustrates stocks and bonds

GUIDE CARD

I am Ms.
First, you have
Catriona, and
to familiarize
I am here to
yourself with
help you see
the key
the beauty of
concepts
Stocks and
about stocks.
Bonds.

Second, you
Finally,
need to know
illustrate
the terms
stocks and
being used on
bonds
bonds.

Let us now explore it

First, let us define key concepts about

STOCKS

 Stocks – are shares in the ownership of the company

 Dividend- share in 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 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.
 Second, you need to know the terms
being used on BONDS

 Bonds – are interest bearing security which promises to pay amount of

money on a certain maturity date as stated in the bond certificate.
 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
 Par value or face value- the amount payable on the maturity date;
denoted by F
 Term of a bond- fixed period of time (in years) at which a bond is
redeemable as stated in the bond certificate
 Fair price of a bond- present value of all cash inflows to the bondholder

Finally, illustrate stocks and bonds

 Bonds
 Stocks
Bonds are interest bearing security
Some corporations may raise money which promises to pay amount of
for their expansion by issuing stocks. money on a certain maturity date as
Stocks are shares in the ownership of stated in the bond certificate. Unlike
the company. Owners of stocks may stockholders, bondholders are lenders
be considered as part owners of the to the institution which may be a
company. There are two types of government or private company.
stocks: common stock and preferred Some bond issuers are the national
stock. Both will receive dividends or government, government agencies,
shares of earnings of the company. government owned and controlled
Dividends are paid first to preferred corporations, non-bank corporations,
shareholders. banks and multilateral agencies.

Stocks can be bought or sold at its Bondholders do not vote in the

current price called the market value. institutional annual meeting but are first
Illustrative examples on STOCKS to claim in the earnings.
a. Three years way back, Ms. Samantha purchased 100 shares of stocks in ABC
Corporation worth P30.00 each. At present, each share is worth P35.00.

Analysis: the purchased price for every share was P30.00, and after 3 years, the
market value of each share is P35.00. This means that there is significant increase of
P5.00 for every share of stock purchased by Ms. Samantha.

b. Mr. David bought 500 shares of stocks in a corporation that had issued 50,000
shares.

Analysis: Based on the foregoing problem, Mr. David owned about 1% of the total
shares since he bought 500 shares from the total issue of 50,000 shares. The higher the
number shares purchased, the higher the ownership or right in the corporation.

Illustrative examples on bonds

a. Ms. Ann bought a 5% bond for P50,000. After 5 years, she received the purchased
value of P50,000 and an additional P1,250 every six months for 5 years.

Analysis: In a certain bond issuance, the amount of money funded will be given back
after the agreed period of time and a semi-annual income for the certain period will
be compensated.

b. Ms. Serrano was offered a 5% bond for P20,000. The bond has a face value of
P20,000 with maturity date of 3 years from the issuance.

Analysis: After the maturity date, Ms. Serrano will be receiving the entire P20,000 plus
regular payment called coupon every six months amounting to P500 for 3 year-period.
 ACTIVITY CARD

After defining the terms on stocks and

bonds, and illustrating it, let us now have
an activity game. Any volunteer?

Ms. Catriona, I
All right, let us
would like to try the
explore it.
first activity.

For our first activity, you have to re-

arrange the jumbled words and form
terms on stocks and bonds. Ok?
Activity 1:

S–S–K–C–T–O E – E – T– T – A - I – F– C – I – R - C Ans.

N – I – D – D– D – E – I – V R–P–E H-S-E– A-R Ans.

R–P–A E–L–V– A- U Ans.

E–K– A–T–M –R L–V–U–E-A Ans.

K–O–C–S–T D–I–Y–L–E O– A–R -I-T Ans.

O – O – C – U – P– N E–A–R–T Ans.

I–E–P–C–R F–O A D–B–N-O Ans.

E– E – I – T – T – N – S - R E–T–Y–M–P–N-A Ans.

M–E–R–T F–O A N–O–B-D Ans.

S–S–K–C–T–O D– A-N S–B–N–D-O Ans.

 I am done Ms. Catriona,
and I am confident with my
answers.

Yes I am.

Ok. Let us unveil the second activity.

This time you are going to identify
the terms being described.

What an overwhelming response

my dear. Are you ready for the
second activity?
Activity 2:

Identify the term being describe on the following statements. Write the answer on the
space provided before each number.
____________________1. A periodic interest payment that the bondholder receives
during the time between purchase date and maturity date; usually received semi-
annually.
____________________2. A ratio of the annual dividend per share and the market value
per share. Also called current stock yield.
____________________3. It is a place where stocks can be bought or sold.
____________________4. These are interest bearing security which promises to pay
amount of money on a certain maturity date as stated in the bond certificate.
____________________5. These are shares in the ownership of the company.

I made it Ms. Catriona.

Can I have more?

I am glad with your favorable reply. More

challenging questions are provided on
the assessment and enrichment cards.
Hopefully you can answer them. Good
luck.
 ASSESSMENT CARD

Assessment 1:

ODD MAN OUT. Select the term which does not belong in the group.
1. A. Bond B. Common C. Preferred D. Stock
2. A. Bondholder B . Share Owner C. Shareholder D. Stockholder
3. A. Obligation B. Ownership C. Shares D. Stocks
4. A. Bondholders B. Borrowers C. Lenders D.Private
Company
5. A. Bonds B. Loans C. Ownership D. Stocks
6. A. Coupon B. Dividend C. Market Value D. Par Value
7. A. Common B. Coupon C. Dividend D. Preferred
8. A. Bond B. Coupon C. Coupon rate D. Market rate
9. A. Fair price B. Market value C. Stock market D. Stock yield
ratio
10. A. Acid-test ratio B. Annual dividend & market value C.Current stock yield D.Stock yield
ratio

Assessment 2:

Analyze the given scenarios on stocks and bonds and answer the given questions.
a. Five years ago, Ms. Castro bought 1,000 shares of stocks in a certain corporation
worth P52.00 each. Now, each share is worth P60.50.

Is it favorable on the part of Ms. Castro that she acquired the certain stocks? Why or
why not?

b. Mr. Dela Torre is offered an 8% bond for P50,000. The bond has a face value of
P50,000 with maturity date exactly 5 years from now. He receives P50,000 (0.08) / 2 =
P2,000 every six months for 5 years. If you were Mr. Dela Torre, would you accept the
offer? Why or why not.
 ENRICHMENT CARD

Analyze the given scenarios on stocks and bonds and answer the given questions.
a. Mr. Tolentino bought 1,000 shares of stocks in a corporation that had issued 100,000
shares. This means Mr. Tolentino acquired 1% of the total shares. On the other hand,
Ms. Francisco bought 10,000 shares of stocks that means she acquired 10% of the total
shares.

Who between Mr. Tolentino and Ms. Francisco made the right acquisition of shares
from the corporation? Justify your answer.

b. Mr. Hans bought a 10% bond for P100,000. After 10 years, she receives P100,000
back. He also receives P100,000 (0.10)/2 = P5,000 for every six months for P10 years.
Compute the total amount that Mr. Hans will receive after 10 years.

REFERENCE CARD

For further understanding and other examples, the

following references are recommended:

General Mathematics Learner’s Material First Edition,

2016, pp. 208 – 213.

Stock Basics Tutorial, Accessed from

http://www.investopedia.com/university/stocks/

Bonds Basics Tutorial, Accessed from

http://www.investopedia.com/university/bonds/
 ANSWER CARD

ACTIVITY CARD
Activity 1: Activity 2:
Stocks Certificate 1. Coupon
Dividend per share 2. Stock Yield Ratio
Par Value 3. Stock Market
Market Value 4. Bonds
Stock Yield Ratio 5. Stocks
Coupon Rate
Price of a Bond
Interest Payment
Term of a Bond
Stocks and Bonds

ASSESSMENT CARD
Assessment 1: Assessment 2:
1. A. Bond A. Yes. The original purchase price was P52.00 each and
2. A. Bondholder the market value is worth P60.50. Meaning, there is a
3. A. Obligation significant increase on the value of stock at present.
4. B. Borrowers
5. B. Loans B. If I were Mr. Dela Torre I will accept the offer because
6. A. Coupon after the maturity date I will be receiving the amount of
7. B. Coupon money given and the corresponding coupon payable
8. D. Market Rate every six months for 5 year-period.
9. A. Fair Price
10. A. Acid-test ratio

ENRICHMENT CARD

a. Ms. Francisco compared with Mr. Tolentino made the better/right decision of
acquiring shares. She acquired a 10% of the total shares which is 9% higher
compare with that of Mr. Tolentino. When it comes to voting rights, Ms. Francisco
also has bigger percentage/right.

b. P100,000 – bond purchased

P100,000 (0.10)/ 2 = P5,0000/ every six months
10 years x 2 (semi-annual) = 20 periodic payments
20 x P5,000 = P100,000 coupon
P100,000 + P100,000 = P200,000 Total amount of money Mr. Hans will be
receiving after 10 years.
 Lesson 2
Learning Competency: Distinguishes between stocks and Bonds

GUIDE CARD

Hi, this is Ms.

Catriona, and First, you need
I am going to to distinguish
continue the between
lesson on stocks and
Stocks and bonds
Bonds.

Finally, solve
Second, give
problems
examples
involving
about stocks
stocks and
and bonds
bonds
 Let us now distinguish stocks from bonds

STOCKS BONDS
A form of equity financing or raising money A form of debt financing, or raising money by
by allowing investors to be part owners of the borrowing from investors
company
Stock prices vary every day. These prices are
Investors are guaranteed interest payments
reported in various media (newspaper, TV, and a return of their money at the maturity
internet, etc.) date.
Investing in stock involves some uncertainty.
Uncertainty comes from the ability of the
Investors can earn if the stock prices bond issuer to pay the bondholders. Bonds
increase, but they can lose money if the issued by the government pose less risk than
stock prices decrease or worse, if the 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 Lower risk but lower yields.
returns.
Can be appropriate if the investment is for Can be appropriate for retirees (because of
the long term (10 years or more). This can the guaranteed fixed income) or for those
allow investors to wait for stock prices to who need the money soon (because they
increase if ever they go low. cannot afford to take a chance at the stock
market)

After distinguishing stocks from bonds, let us

now have examples.

Example 1:

A certain financial institution declared a P30,000,000

dividend for the common stocks. If there are a total of 700,
000 shares of common stock, how much is the dividend per
share?

Given: Total Dividend = P30,000,000

Total Shares = 700,000
Find: Dividend per Share

Solution: Dividend per Share = Total Dividend / Total Shares

= 30,000,000 / 700, 0000
= 42. 86

Therefore, the dividend per share is P42.86

Example 2:

A certain corporation declared a 3% dividend on a

stock with a par value of P500. Mrs Lingan owns 200 shares of
stock with a par value of P500. How much is the dividend she
received?

Solution.
Given: Dividend percentage = 3%
Par value = P500
Number of shares = 200

The dividend per share is P500 x 0.03 = P15. Since there

are 200 shares, the total dividend is P15/share x 200
shares = P3,000.
Thus, the dividend is P3,000.

Example 3:
Corporation A, with a current market value of P52, gave
a dividend of P8 per share for its common stock. Corporation
B, with a current market value of P95, gave a dividend of P12
per share. Use the stock yield ratio to measure how much
dividends shareholders are getting in relation to the amount
invested.

Solution: Given: Corporation A:

Dividend per share = P8
Market value = P52

Find stock yield ratio

Stock yield ratio = dividend per share / market value
= 8 / 52
= 0.1538 = 15.38%
 Example 4:
Determine the amount of the semi-annual coupon for a
bond with a face value of P300,000 that pays 10%, payable
semi-annually for its coupons.

Solution: Given: Face Value F = P300,000

Coupon Rate r = 10%

Annual coupon amount: 300,000 (0.10) = 30,000

Semi-annual coupon amount: 30,000 (1/2) = P15,000

Thus, the amount of the semi-annual coupon is P15,000.

The coupon rate is used only for computing the coupon
amount, usually paid 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.

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: Coupon rate = % semi-annually Face value F = P100.000

Time of maturity = 10 years Number of periods = 2(10) = 20
Market rate = 4%

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

The bondholder receives 20 payments of P2,500 each, and P100,000 at t =
10.

Present value of P100,0000:

P = F / (1 + j)n = 100,000 / (1 + .04)10 = 67, 556.42
Present value of 20 payments of P2,500 each:

Convert 4% to equivalent semi-annual rate:

(1 + 0.04)1 = (1 + i(2)/2)2
i(2)/2 = 0.019804

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

Thus, a price of P108, 512.14 is equivalent to all future payments, assuming

an annual market rate of 4%
 ACTIVITY CARD

After distinguishing the difference between

stocks and bonds and answering
problems, we are now going to explore
the activity. Would you like to try it?

Ms. Catriona, may I

answer the first activity?
Of course. For our first activity, you have
to tell whether the following is a
characteristic of stocks or bonds.

Activity 1:

1. A form of equity financing or raising money by allowing Ans.

investors to be part owners of the company.

2. A form of debt financing, or raising money by borrowing Ans.

from investors.

3. Investors are guaranteed interest payments and a return of Ans.

their money at the maturity date.

Ans. 4. 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.
Ans. 5. It can be appropriate for retirees (because of the
guaranteed fixed income) or for those who need the money
soon.
 I was able to answer it Ms.
Catriona.

Well, that’s good. Let us now

proceed with the second
activity. Are you ready for it?

Yes Ms. Catriona. I am

excited for our next activitry.

Ok. Let us unveil the second

activity. This time you are going
to complete the table.

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 the 5 stockholders. Write your answer on the space provided.
Note: Stockholders dividend = Par value x Dividend percentage x Number of shares
Stockholder Par Value (in Dividend (%) Number of Stockholders
pesos) Shares Dividend
A 50 3% 100 ?
B 48 2.75% 150 ?
C 35 2.5% 300 ?
D 42 3.12% 400 ?
E 58 3.5% 500 ?

I am done with the activity Ms.

Catriona and I am certain with
my answers.

I am happy with your reaction. More

challenging questions and problems are
provided on the assessment and
enrichment cards. Hopefully you can
answer them. Good luck.
 ASSESSMENT CARD

Assessment 1:

Gen-Math Corporation listed the par value, the dividend percentage and the number
of shares of stock of its 5 stockholders. At the end the calendar year, the CEO wants to
determine the dividends earned by these stockholders. If you were the accountant in
charge of the company report on dividend, how much would each stockholder
receive?

Stockholder Par Value (in Dividend (%) Number of Stockholders

pesos) Shares Dividend
1 85 8% 10,500 ?
2 75 7.5% 12,750 ?
3 60 6.5% 30,000 ?
4 56 5.35% 18,250 ?
5 48 9.25% 32,500 ?

Assessment 2:
Answer the following problems. Show your complete solutions.

• A land developer declared a dividend

Problem of P10,000,000 for its common stock.
Suppose there are 600,000 shares of
common stock, how much is the
1 dividend per share?

• Find the amount of the semi-annual

Problem coupon for a P250,000 bond which
pays 7% convertible semi-annually for
its coupon.
2
 ENRICHMENT CARD

Answer the following problems completely.

1. A food corporation declare 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?

2. A certain financial institution declared P57 dividend per share for its
common stock. The market value of stock is P198. Determine the
stock yield ratio.

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

bond with a face value of P80,000 which matures after 15 years.

4. A P450,000 bond is redeemable at P550,000 after 5 years. Coupons

are given at 5% convertible semi-annually. Find the amount of the
semi-annual coupon.
 REFERENCE CARD

For further understanding and other examples, the

following references are recommended:

General Mathematics Learner’s Material First Edition,

2016, pp. 209 – 216.

Stock Basics Tutorial, Accessed from

http://www.investopedia.com/university/stocks/

Bonds Basics Tutorial, Accessed from

http://www.investopedia.com/university/bonds/

ANSWER CARD

ACTIVITY CARD ASSESSMENT CARD

Activity 1: Activity 2: Assessment 1: Assessment 2:

1. Stock A. 150 1. 71,400 P1. 16.67
2. Bond B. 198 2. 71,718.75 P2. 8,750
3. Bond C. 262.5 3. 117,000
4. Stock D. 524.15 4. 54,677
5. Bond E. 1,015 5. 144,300

ENRICHMENT CARD

Problem 1. P138.89
Problem 2. 28.79%
Problem 3. P1,200
Problem 4. P11,250
 Lesson 3

Learning Competencies: Describes the different markets for stocks and bonds

Analyzes the different market indices for stocks and bonds

GUIDE
CARD

In the next lesson, learners will be able to describe the

different markets for stocks and bonds, and analyze the different
market indices for stocks and bonds. Let us explore the lesson.

Index Value of Change of Index value Ratio of change

Index from previous trading to Value
S I T
PSEi 7,523.93 -14.20 -0.19
T N A Financial 4,037.83 6.58 0.16
O D B Holding Firms 6,513.37 2.42 0.037

C E L Industrial 11,741.55 125.08 1.07

K X E Property 2,973.52 -9.85 -0.33

Services 1,622.64 -16.27 -1.00

Mining & Oil 11,914.73 28.91 0.24

The table above shows how a list of The STOCK INDEX can be a standard
index values is typically presented by which investors can compare the
(values are hypothetical) performance of their stocks
 Provided below is an example of Stock
Table with necessary legends.

52-WK

Hi LOW STOCK DIV VOL (100s) CLOSE NETCHG

60 35.5 AAA .70 2050 57.29 0.10

45 32.7 BBB .28 10700 45.70 -0.2

The table shows how

information about
stocks can be
presented (values are
hypothetical)

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- Five-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 stock 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
 Based on the table above, we can answer the following questions.

For stocks AAA:

1. What was the

highest price of the
stock for the last 52
weeks?

2. What was the

3. What was the
lowest price of the
dividend per share
stock for the last 52
last year?
weeks ?

Stocks
AAA
4. What was the 5. What was the
closing price in the closing price the day
last trading day? before the last
trading day?
Answers for the
problem
1. 60
2. 35.5
3. .70
4. 57.29
5. 57.19
 For stocks BBB.

1. What was the

highest price of the
stock for the last 52
weeks?

2. What was the

3. What was the
lowest price of the
dividend per share
stock for the last 52
last year?
weeks?

Stocks
BBB
5. What was the
4. What was the
closing price the day
closing price in the
before the last
last trading day?
trading day?

Answers for the problem

1. 45
2. 32.7
3. .28
4. 45.70
5. 45.92
 To buy or sell stocks, one may go to the PSE personally or
making a phone call to registered broker. Those with accounts in
online trading platforms may often encounter a table such as the
following:

BID ASK/OFFER

Traders Stocks Price Price Stocks Traders

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, 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 stock are willing to sell the
stock for

* Ask size – how many individual sell orders have been placed in the

For example, the first row under BID means

that there are a total of 122 traders who

wish to buy a total of 354,000 shares at

P21.60 per share. On the other hand, the

first row under ASK means that just one

trader is willing to sell his/her 20,000 shares

at a price of P21.80 per share.

 ACTIVITY
CARD

After being guided by the concepts and examples above, it is

now your turn to discover the correct responses for the following
activities. Good luck.

Activity 1: Consider the following listing on stocks and answer the questions that follow:

52-WEEKS Hi LOW 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 in the last trading day?
5. What was the closing price the day before the last trading day?

QUESTIONS:
1. How many traders
are willing to purchase
124,380 shares?
Analyze the given table and answer the questions 2. At what price are the
given: 25 traders willing to
buy 45,200 shares?
BID ASK/OFFER 3. Based on the table,
how many traders are
Traders Shares Price Price Shares Traders willing to sell their
shares for P25.60 each?
765 450,750 24.75 24.90 180,000 250 4. 84 traders are willing
18 124,380 24.60 24.95 340,500 40 to sell how many shares
95 750,100 24.55 25.25 10,750 84 for P25.25 each?
25 45,200 24.40 25.35 32,000 50
80 18,750 24.30 25.60 12,800 160
 Assessment
Assessment
CARD
card

To evaluate your learning progress on the topic presented, here

is another set of activities. Best of luck learners.

Consider the following listing on stocks and 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

 Enrichment
CARD

52-WEEKS

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

50 35.8 AAB .40 1.2 10 2000 57.29 1.3

43.5 37 BBA .35 1.9 5.7 1200 40.70 -0.5

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

52 w - e - e -k - s w - e - e - k- l - y

HIGH LOW NAME CUR SALES HIGH LOW LAST NET

YLD (1000)

101 88 XXY 3.1 20 100 98 100 -1

104 100 YYX 27 30 102 97 101 1

5. What is the current yield of the bond XXY?

6. What is the current yield of the bond YYX?
7. For a P1,000 YYX bond, what was the closing price last week?
 REFERENCE
CARD

For further understanding and other examples, the

following references are recommended:

General Mathematics Learner’s Material First Edition,

2016, pp. 217 - 222.

General Mathematics Teacher’s Guide pages 259 -262

http://www.pse.com.ph/stockmarket/home.html

ANSWER
CARD

ACTIVITY CARD ASSESSMENT CARD

Activity 1 Activity 2 Assessment

GGG HHH JJJ KKK

1. 105 1. 12 1. 18 1. 75 1. 23

2. 3.5 2. 0.9 2. 24.40 2. 2.5 2. 120,000

3. 2.8 3. 1.1 3. 160 3. 28 3. 1.7

4. 118.50 4. 15.8 4. 10,750 4. 70 4. 28

5. 119 5. 15.7 5. 68 5. 31

ENRICHMENT CARD
1. .40 3. 40.70 5. 3.1 7. 101

2. 1.9 4. 55.99 6. 2.7

 Lesson 4: Theory of Efficient Markets

GUIDE
CARD

Learning Competency: Interprets the theory of efficient markets

Subtasks:

1. Discuss the efficient market hypothesis.

2. Identify the different types of efficient markets

In this lesson, I am going to unveil the Theory of Efficient Markets.

At the end of the lesson, I am expecting that you can interpret the
theory of efficient market.

To start, you have to understand the following terms.

\ The Efficient Market Hypothesis

The theory of efficient market was developed by Eugene Fama in the 1970’s. 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” (because they are based on all available
information), then there is no such thing as discovering undervalued or overvalued
stocks from which to gain profits. Thus, the theory implies that investors cannot beat
the market even if they do a lot of research. In the end, investors will just find out that
the correct price is what is already published

Three Forms of Efficient Market according to

Clarke, Jandik and Mandelker

For the weak form of the theory, stock prices already reflect all past market
trading data and historical information only. Thus, knowing past data will not give
investors an edge. If the weak form of the theory is true, then a technical analysis (an
analysis of past prices) will not yield new information and hence will not lead to
systematic profits.

For semistrong form of the theory, stock prices already reflect all publicly
available data, including those involving the product, management team, financial
statement, competitors and industry. If the semistrong form of the theory is true, then
doing a fundamental analysis (gathering all public data) will still not lead to
systematic profits.

For the strong form of the theory, all information (public and private) are
incorporated in the price. If the strong form of the theory is true, then investors still
cannot gain systematic profits even if they gather information that is not yet publicly
known.
 Let us now solve examples

Provide a counter – argument for each statement.

2. We can beat the stock market because

1. We cannot beat the stock market because
several people have already gained millions
stock prices already reflect all the given
(or even billions) from stock trading.
information about the stocks.
Sample counter – argument: these people
Sample counter – argument: Information
could just be lucky. By the theory of efficient
about stocks can change quickly, and it takes
markets, investors cannot systematically gain
time (and high- speed computers) before a
from the stock market even if they do a lot of
stock price can reflect all information.
research.

3. One can beat the stock market because

4. One can beat the stock market by gathering
stock prices fluctuate very often (every day,
more information about stocks to determine
hour, and minute) and they can be overvalued
the best place to invest.
or undervalued.
Sample counter – argument: The theory of
Sample counter – argument: The theory of
efficient market states that all the needed
efficient markets states that all information is
information, public or private, are already
incorporated right away and constantly. Thus
incorporated in stock price.
stock prices tend to respond quickly.

5. One can beat the stock market by obtaining

the services of financial analysis.
Sample counter – argument: Financial
analysts may help in the analysis of stock
prices especially on researching on mispriced
stocks. But financial analysis may be costly.
Some say that the gain may not be enough to
pay the cost of a financial analysis
 ACTIVITY
CARD

After understanding the terms, knowing the efficient market

hypothesis, determining the three efficient markets and analyzing
counter-arguments it is now your turn to answer questions in the
Activity, Assessment and Enrichment Cards. Good luck

Activity 1:

Identify the term being described by each of the following

statements. Write the answer on the space provided before each
number.
____________________1. Asserts that stock prices already incorporate all
publicly available information only

____________________2. Analysis of patterns in historical prices of a stock

____________________3 Asserts that stock prices already incorporate all

past market trading data and information (historical price information)
only

____________________4. Analysis of various public information (e.g., sales,

profits) about a stock

____________________5. Asserts that stock prices already incorporate all

information (public and private)
 ACTIVITY 2

TRUE or FALSE

1. Stock are shares in the ownership of a company.

2. The theory of efficient markets states that prices of

investments reflect all available information.

3. The weak form of the theory of efficient market states that all
public information are incorporated in the price of stocks.

4. The semistrong form of the theory of efficient markets states

that all past available information are incorporated in the
price.

5. The strong form of the theory of efficient markets states that

all information (public and private) are incorporated in the
price.

6. Fundamental analysis is the analysis of historical prices.

7. Technical analysis is the analysis of past prices.

8. The theory of efficient market is developed by Eugene Fama.

9. Trust market prices theory give an accurate measure of all

possible information about the stock, thus the theory implies
that investors can beat the market by doing a lot of research.

10. The three efficient markets were discussed by Clarke, Jandik

and Mandelley.
 ASSESSMENT
CARD

Assessment 1 Assessment 2

Determine the efficient market being The following are informations in

discussed in each of the following beating or not beating the stocks in
situations. the market. Write Beating or anOT
Beating before the number where the
1. PSE provided all the necessary
statement belongs.
informations needed by the traders
both public and private in the price of 1. Knowing more information about
stocks. stocks can determine the best place
to invest.
2. Ms. Kayecee is a regular trader of 2. Stock prices already reflect all the
stocks in the market. Based on the given information about the stocks.
data presented to her, stock prices 3. Computers are now making it faster
reflected all past market trading and for stock prices to model new
historical information only. information.
4. In order to access all the
3. Under this theory, investors still information, I need time and
cannot gain systematic profits even if resources.
they gather information that is not yet 5. Everyhting gained is by chance.
publicly known. 6. If such information about stocks are
public. we cannot earn profit from
4. Mark, Michael and Marianne are what everyone else knows.
activetly engaged in trading stocks. 7. It takes time before stock prices can
Based on the reflected stock prices respond to new information. If I invest
information available include the quickly enough , then I can gain some
product, management team, profit.
financial statement, competitors and 8. There are human errors involved in
industry. computing the correct value of stocks
9. Several people have gained millions
5. One hundred traders attended the or even billions from stock trading.
bidding for the newly offered shares. 10. If I know relevant information that
These traders had access on the past is not publicly available about certain

Assessment 2 answer card

We can beat the market

We cannot beat the market

 ENRICHMENT
CARD

Provide a counter-argument for the following statements:

1. We cannot beat the stock

market because stock prices
already reflect all the given
information about the stocks

2. We can beat the stock market

because several people have
already gained millions (or even
billions) from stock trading.

3. One can beat the stock market

because stock prices fluctuate
very often (every day, hour, and
minute) and they can be
overvalued or undervalued.

4. One can beat the stock market

by gathering more information
about stocks to determine the
best place to invest.

5. One can beat the stock market

by obtaining the services of
financial analysis.
 Reference
CARD

For further understanding and other examples, the

following references are recommended:

General Mathematics Learner’s Material First Edition, 2016,

pp. 222 - 224.

General Mathematics Teacher’s Guide pages 262 -265

ANSWER
CARD

A–C–T–I–V–I–T–Y C–A–R-D

Activity 1 Activity 2

1. Semi-strong Form of Efficient Market Theory 1. True 6. False

2. Technical Analysis 2. True 7. True

3. Weak Form of Efficient Market Theory 3. False 8. True

4. Fundamental Analysis 4. False 9. False

5. Strong Form of Efficient Market Theory 5. True 10. False

A–S–S–E–S–S–M–E–N–T C–A–R-D

Assessment 1

1. Strong Form of the Theory 4. Semi- strong Form of the Theory

2. Weak Form of the Theory 5. Weak Form of the Theory

3. Strong Form of the Theory

Assessment 2

We can beat the market

We cannot beat the market
1. Knowing more information
about stock can determine the 2. Stock prices already reflect
best place to invest. all the given information about
3. Computers are now making it the stocks.
faster for stock prices to model 4. In order to access all the
new information. information, I need time and
7. It takes time before stock resources.
prices can respond to new 5. Everyhting gained is by
information. If I invest quickly chance.
enough , then I can gain some 6. If such information about
profit. stocks are public. We cannot
9. Several people have gained earn profit from what
millions or even billions from everyone else knows.
stock trading. 8. There are human errors
10. If I know relevant information involved in computing the
that is not publicly available correct value of stock
about certain stock, then I might
gain profits.

Enrichment Card
1. Information about stocks can change quickly, and it takes time (and high-
speed computers) before a stock price can reflect all information.

2. These people could just be lucky. By the theory of efficient markets,

investors cannot systematically gain from the stock market even if they do a
lot of research.

3. The theory of efficient markets states that all information is incorporated

right away and constantly. Thus stock prices tend to respond quickly.

4. The theory of efficient market states that all the needed information, public
or private, are already incorporated in stock price.

5. Financial analysts may help in the analysis of stock prices especially on

researching on mispriced stocks. But financial analysis may be costly.