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Grade 11 • Unit 14: Stocks and Bonds

LESSON 14.2
Stock and Bond Markets
Table of Contents

Learning Competency 1
Learning Objectives 1
Essential Questions 2
Prerequisite Skills and Topics 2
Lesson Proper 3
A. Introduction to the Lesson 3
B. Discussion 5
C. Practice & Feedback 10
Performance Assessment 15
Worksheet Answer Key 16
Synthesis 18
Bibliography 18
 Grade 11 • Unit 14: Stocks and Bonds

Unit 14 | Stocks and Bonds

Lesson 2: Stock and Bonds Market

Learning Competency
At the end of the lesson, the learners should be able to describe the different
markets for stocks and bonds (M11GM-IIe-3).

Learning Objectives
At the end of this lesson, the learners should be able to do the following:
• Accurately differentiate a stock market from a bond market.
• Correctly solve for the coupon of a bond.
• Correctly solve for the fair price of a bond.
• Accurately determine whether a stock is a good investment or not.

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 Grade 11 • Unit 14: Stocks and Bonds

Essential Questions

At the end of this lesson, the student should be able to answer the following questions:
● What is the difference between the stock market and the bond market?
● How would you determine if a stock is a good investment?

Prerequisite Skills and Topics

Skills:
● Solving for simple interest
● Solving for the present value of an annuity
● Illustrating stocks and bonds

Topics:
● General Mathematics Unit 12: Simple and Compound Interest | Lesson 1: Simple
Interest
● General Mathematics Unit 12: Simple and Compound Interest | Lesson 2: Solving
Problems Involving Simple Interest
● General Mathematics Unit 13: Simple and General Annuities | Lesson 2: Present
Value of a Simple Annuity
● General Mathematics Unit 14: Stocks and Bonds | Lesson 1: Stocks and Bonds

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 Grade 11 • Unit 14: Stocks and Bonds

Lesson Proper

A. Introduction to the Lesson

Suggested Warm-up Activities
Choose from any of the following warm-up activities. These warm-up activities should
either stimulate recall of the previous lesson or introduce the lesson and not already
used in the study guide.

Activity 1: Buy One, Earn One!

This activity will test the students' reasoning for buying stocks.

Duration: 10 minutes

Materials Needed: none

Methodology:
1. Each student is given a fictitious ₱1 000.
2. Ask the students to buy shares from the given types of a company using their
money. Consider the following choices.
a. Food: ₱100 per share
b. Retail: ₱380 per share
c. Electricity: ₱500 per share
3. The students may use all or part of their money.
4. Ask the students to explain why they decided to invest in their chosen
companies.

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 Grade 11 • Unit 14: Stocks and Bonds

Expected Results:
The students should be able to explain their reasons for their investment decision
articulately.

Guide Questions:
1. What strategy did you use in buying shares?
2. What factors did you consider in buying shares?
3. Can you apply the same strategy in buying bonds?

Activity 2: How Much Do I Get?

This activity will help the students recall how to compute dividends.

Duration: 10 minutes

Materials Needed: notebook, pen.

Methodology:
1. Let the students form groups of five.
2. Tell the groups that they will be members of an imaginary company. Assign
the members of each group a certain number of shares.
3. Show the amount of profit that the company made in the past year.
4. The students should compute how much stock dividend they will get based
on the number of shares they own.

Expected Results:
The following is a sample result.

Profit: ₱1 800 000

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 Grade 11 • Unit 14: Stocks and Bonds

• Student 1: 2 000 shares = ₱800 000

• Student 2: 500 shares = ₱200 000
• Student 3: 1 000 shares = ₱400 000
• Student 4: 200 shares = ₱80 000
• Student 5: 800 shares = ₱320 000

Guide Questions:
1. How did you determine how much you will get from the company’s annual
profit?
2. Does having more shares mean more dividends?

Teacher’s Notes
To help better gauge students’ readiness for this lesson, you may assign the short test
given in the Test Your Prerequisite Skills section of the corresponding study guide.

B. Discussion

1. Define and Discover

Teacher’s Notes
You may use the Learn about It! slides in the presentation file to discuss the following
key concepts and examples. Make sure to address student questions before jumping
from one concept to another.

In this lesson, the following key terms and concepts will be discussed:

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 Grade 11 • Unit 14: Stocks and Bonds

• Stock Market – a marketplace wherein publicly listed companies are issuing and
trading shares of stock through exchange or brokers

The Philippine Stock Exchange (PSE) and New York Stock Exchange (NYSE) are
examples of stock markets.

• Dividend – a share in a company’s profit

A cash dividend is money given to shareholders based on the number of shares

they own during the dividend declaration for the year. This is the most common
dividend.

Stock dividend is made in the form of giving more shares. Some investors prefer
this dividend over cash dividends because it is tax-free.

• Stock Appreciation - the increase in the value of a stock from its first purchased
value

When you buy a stock and sell it at a higher price, you use stock appreciation to
earn money.

• Bond Market - a financial market where issuance and trading of debt securities
take place; also called the debt market.

Corporate bonds give debt securities the ability to raise money for different
reasons. Government bonds are issued by national governments. This is more
commonly availed by conservative investors.

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 Grade 11 • Unit 14: Stocks and Bonds

• Coupon – interest payment received by the bondholder under a periodic system

during the time between the purchase date and maturity date of the bond

The bondholder gets an interest depending on the agreed time interval. It can be
annual, semi-annual, quarterly, or monthly.

• Tenor or Term of a Bond – a fixed period of time in years after which the bond
is redeemable as stated in the bond certificate

This is the time from the purchase date to the maturity date.

• The Fair Price of a Bond – the present value of all cash inflows of the bondholder

This is the value of the cash flows the bond is expected to generate.

• Par Value or Face Value – the amount payable on the maturity date of a bond

This is the amount the issuer promises to pay the bondholder on the maturity
date. A bond may be bought at par (fair price equals face value), discount (fair
price is less than face value), or premium (fair price is greater than face value).

• Required Yield – the return a bond must offer for an investment to be

worthwhile.

This is set by the market and sets a precedent for how current bond issues will
be priced.

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 Grade 11 • Unit 14: Stocks and Bonds

• Stock Yield Ratio – the ratio of the annual dividend to the current market value
per share of the stock; usually expressed in percent

This is used to interpret the profitability of a stock with respect to its market value.
The market value of a stock is the current price at which it can be sold.

2. Develop and Demonstrate

Example 1
A company declared a ₱2 000 000 dividend for common stocks. The number of shares
issued is 50 000. How much is the dividend per share?

Solution:
Determine the dividend per share by dividing the total dividend by the total number
of shares.

2 000 000 ÷ 50 000 = 40

Therefore, the dividend per share is ₱𝟒𝟎.

Example 2
Determine the semi-annual coupon for a bond with a face value of ₱800 000 that pays
20% payable semiannually.

Solution:
Use the formula for simple interest to solve for the coupon. Use the face value as
1
principal, the coupon rate as interest rate, and 𝑡 = 2 since the coupon is paid

semiannually.
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 Grade 11 • Unit 14: Stocks and Bonds

semi − annual coupon = 𝐹𝑟𝑡

1
= 800 000(0.20) ( )
2
= 80 000

Thus, the semi-annual coupon of the bond is ₱𝟖𝟎 𝟎𝟎𝟎.

Example 3
Calculate the price of a bond with a face value of ₱400 000 to be paid in four years
with a semi-annual coupon at a rate of 6% and a required yield of 5%. Determine if
the bond is selling at par, discount, or premium.

Solution:
1. Determine the given in the problem.

Face value (𝐹) = 400 000

Coupon rate (𝑟) = 6% or 0.06
Required yield = 5% or 0.05
Number of conversion periods (𝑛) = 8
(4 years multiplied by 2 conversion periods per year since the coupon is semi-
annual)

2. Solve for the semi-annual coupon.

Let 𝑅 be the semi-annual coupon.

𝑅 = 𝐹𝑟𝑡
1
𝑅 = (400 000)(0.06) ( )
2
𝑅 = 12 000
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 Grade 11 • Unit 14: Stocks and Bonds

3. Determine the present value of the coupon payments using the present value of
an annuity and add it to the present value of the bond’s face value.

0.05
Note that the semi-annual required yield is 2
= 0.025. Use this as the interest

rate.
1 − (1 + 𝑟)−𝑛
𝑃=𝑅 + 𝐹(1 + 𝑟)−𝑛
𝑟
1 − (1 + 0.025)−8
𝑃 = 12 000 + 400 000(1 + 0.025)−8
0.025
𝑃 = 414 340.27

The price of the bond is ₱414 340.27. Since 𝐹 = 400 000 and 𝑃 = 414 340.27, the bond
is sold at a premium since 𝑃 > 𝐹.

C. Practice & Feedback

For Individual Practice
1. Ask the students to answer the following problem items individually using pen
and paper.
2. Give students enough time to answer the problem items.
3. Call a random student to show his or her work on the board afterward.
4. Let the student share how he or she comes up with his or her solution.
5. Inform the student of the accuracy of his answer and solution, and in the case
when there is some sort of misconception, lead the student in the right
direction to find the correct answer.

Problem 1
A company declared a ₱5 000 000 dividend for common stocks. The number of shares
issued is 10 500. How much is the dividend per share?

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 Grade 11 • Unit 14: Stocks and Bonds

Solution:
Determine the dividend per share by dividing the total dividend by the total number
of shares.
5 000 000 ÷ 10 500 = 476.19

Therefore, the dividend per share is ₱𝟒𝟕𝟔. 𝟏𝟗.

Problem 2
Find the amount of semi-annual coupon of a ₱780 000 bond which pays 8%
convertible semiannually for its coupons.

Solution:
Use the formula for simple interest to solve for the coupon. Use the face value as
1
principal, the coupon rate as interest rate, and 𝑡 = since the coupon is paid
2

semiannually.

semi − annual coupon = 𝐹𝑟𝑡

1
= 780 000 (0.08) ( )
2
= 31 200

Thus, the semi-annual coupon of the bond is ₱𝟑𝟏 𝟐𝟎𝟎.

Problem 3
Calculate the price of a bond with a face value of ₱800 000 to be paid in three years
with a semi-annual coupon at a rate of 7.5% and a required yield of 8%. Determine if
the bond is selling at par, discount, or premium.

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 Grade 11 • Unit 14: Stocks and Bonds

Solution:
1. Determine the given in the problem.

Face value (𝐹) = 800 000

Coupon rate (𝑟) = 7.5% or 0.075
Required yield = 8% or 0.08
Number of conversion periods (𝑛) = 6
(3 years multiplied by 2 conversion periods per year since the coupon is semi-
annual)

2. Solve for the semi-annual coupon.

Let 𝑅 be the semi-annual coupon.

𝑅 = 𝐹𝑟𝑡
1
𝑅 = (800 000)(0.075) ( )
2
𝑅 = 30 000

3. Determine the present value of the coupon payments using the present value of
an annuity and add it to the present value of the bond’s face value.

0.08
Note that the semi-annual required yield is 2
= 0.04. Use this as the interest

rate.

1 − (1 + 𝑟)−𝑛
𝑃=𝑅 + 𝐹(1 + 𝑟)−𝑛
𝑟
1 − (1 + 0.04)−6
𝑃 = 30 000 + 800 000(1 + 0.04)−6
0.04
𝑃 = 789 515.73

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 Grade 11 • Unit 14: Stocks and Bonds

The price of the bond is ₱𝟕𝟖𝟗 𝟓𝟏𝟓. 𝟕𝟑. Since 𝐹 = 800 000 and 𝑃 = 789 515.73, the
bond is sold at a discount since 𝑃 < 𝐹.

For Group Practice

1. Ask the students to form a minimum of two groups to a maximum of five groups.
2. Each group will answer problem items 4 and 5. These questions are meant to test
students’ higher-order thinking skills by working collaboratively with their peers.
3. Give students enough time to analyze the problem and work on their solution.
4. Ask each group to assign a representative to show their solution on the board and
discuss as a group how they come up with their solution.
5. Inform the student of the accuracy of his answer and solution, and in the case
when there is some sort of misconception, give the student opportunity to work
with his/her peers to re-analyze the problem and then lead them in the right
direction to find the correct answer.

Problem 4
A company gave out ₱20 dividends per share for its common stock. The market value
of the stock is ₱90. Determine the stock yield ratio.

Solution:
To determine the stock yield ratio, we use the following formula.

Dividend per share

Stock yield ratio = ∙ 100%
Current market value
20
= ∙ 100%
90
= 22.22%

Hence, the stock yield ratio is 𝟐𝟐. 𝟐𝟐%.

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 Grade 11 • Unit 14: Stocks and Bonds

Problem 5
ABC Company has a current market value of ₱40 per share. They gave a dividend of
₱4 per share for common stocks. On the other hand, XYZ Company gave a dividend
of ₱10 per share. Their current market value is ₱60 per share. If all other things
remain constant, in which company should you invest?

Solution:
To determine the best company to invest in, let us determine the stock yield ratio of
each company.

For Company ABC,

Dividend per share

Stock yield ratio = ∙ 100%
Current market value
4
= ∙ 100%
40
= 𝟏𝟎%

For Company XYZ,

Dividend per share

Stock yield ratio = ∙ 100%
Current market value
10
= ∙ 100%
60
= 𝟏𝟔. 𝟔𝟕%

Since Company XYZ’s stock yield ratio is higher than Company ABC’s, each peso would
earn more if you invest in Company XYZ. Thus, it is better to invest in Company XYZ.

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 Grade 11 • Unit 14: Stocks and Bonds

Performance Assessment
This performance assessment serves as a formative assessment, divided into three sets
based on the student's level of learning. Click on the link provided on the lesson page to
access each worksheet.

● Worksheet I (for beginners)

● Worksheet II (for average learners)
● Worksheet III (for advanced learners)

Teacher’s Notes
For a standard performance assessment, regardless of the student's level of learning,
you may give the problem items provided in the Check Your Understanding section of
the study guide.

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 Grade 11 • Unit 14: Stocks and Bonds

Worksheet Answer Key

Worksheet I
A.
1. face value or par value
2. tenor or term of a bond.
3. market value
4. bond market
5. required yield
6. stock yield ratio
7. stock appreciation
8. stock market
9. cash dividend
10. coupon

B.
1. ₱40
2. 23.53%
3. ₱7 500
4. ₱11 250
5. SN Corporation

Worksheet II
A.
1. TRUE
2. TRUE
3. bond market
4. TRUE
5. TRUE
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 Grade 11 • Unit 14: Stocks and Bonds

6. higher
7. discount
8. TRUE
9. government bonds
10. TRUE

B.
1. 10.96%
2. ₱40
3. ₱3 125
4. ₱36 000
5. shoe company

Worksheet III

1. ₱416.67
2. 25.44%
3. 33.26%
4. ₱17 100
5. ₱50
6. ₱34 166.67
7. ₱17 500
8. retail company
9. ₱350 945.70
10. ₱825 916.04; discount

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 Grade 11 • Unit 14: Stocks and Bonds

Synthesis

To summarize the lesson, ask students the following questions:

Wrap-up
1. What is the difference between a stock market and a bond
market?
2. How does the stock yield ratio help in determining where it
is best to invest?

To integrate values and build a connection to the real world, ask

Application and
students the following questions:
Values Integration
1. Why is it important to understand how the stock market
works?
2. Do you think the stock market affects our daily lives? In
what way?

To spark interest for the next lesson, ask students the following
Bridge to the Next
questions:
Topic
1. What does a stockbroker do?
2. What factors affect stock market prices?

Bibliography

Beers, Brian. “Cash Dividends or Stock Dividends: Which is better?” Investopedia. Retrieved
20 May 2019 from https://bit.ly/2LVb8zA

Chen, James. “Bond Market.” Investopedia. Retrieved 20 May 2019 from

https://bit.ly/2U2j70C

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 Grade 11 • Unit 14: Stocks and Bonds

Ganti, Akhilesh. “Stock.” Investopedia. Retrieved 20 May 2019 from https://bit.ly/2rnRnGy

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