1. Stocks, Bonds, and Mutual Funds
Chapter 21
Stocks, Bonds, and Mutual Funds

2. Learning Unit Objectives
#21
Stocks, Bonds, and Mutual Funds
Learning Unit Objectives
LU21.1
Stocks
Read and explain stock quotations
Calculate dividends of preferred and common stocks; calculate return on investment

3. Learning Unit Objectives
#21
Stocks, Bonds, and Mutual Funds
Learning Unit Objectives
LU21.2
Bonds
Read and explain bond quotations
Compare bond yields to bond premiums and discounts

4. Learning Unit Objectives
#21
Stocks, Bonds, and Mutual Funds
Learning Unit Objectives
LU21.3
Mutual Funds
Explain and calculate net asset and mutual fund commissions
Read and explain mutual fund quotations

5. Stocks Common Stock - Stock that allows owners to have voting rights
Stock - Shares of ownership in a company
Preferred Stock - Does not allow voting rights, but gives preference over common stockholders in dividends
Cumulative preferred stock - entitles its owners to a specific amount of dividends in 1 year

6. Dividends - Payments to shareholders from profit
Stocks
Dividends - Payments to shareholders from profit
Stockholders
Elect
Board of Directors
Officers of Corporation
Dividends in arrears - Payments owed to cumulative preferred shareholders

7. Stock exchanges - An orderly trading place for stock.
How Stocks Are Traded
Stock exchanges - An orderly trading place for stock.
Stockbrokers - people who buy and sell stock on the floor of the exchanges. They charge a commission for trading stocks.

8. Stock Quotations in Newspaper’s
52 weeks YLD VOL
HI LO STOCK (SYM) DIV % PE s LAST
Home DPT

9. Stock Quotation Calculations
Stock yield = Annual dividend per share = $.90 = 2.3%
Today’s closing price per share $39.92
Earnings per share = Annual earnings Total number of shares outstanding
*Earnings Per Share are not listed on the stock quote
PE Ratio = Closing price per share of stock = $ = 14
Annual earnings per share $2.85

10. Dividends on Preferred and Common Stock
Stock records for You Corporation show the following:
Preferred stock issued: 20,000 shares In 2009, Sony paid no dividends
Preferred stock cumulative at $.80 per share In 2010, Sony paid $512,000 in Common stock issued: 400,000 shares dividends.
2009
Dividends paid 0
Preferred stockholders Paid: 0
Owe: 20,000 x $.80 = $16,000
Common Stockholders 0
2010
Dividends paid $512,000
Paid for ,000
Paid for ,000
32,000
Total dividend ,000
Paid preferred for ‘09 & ’ ,000
Common Stockholders $480,000
$480, = $1.20 per share
400,000 shares

11. Return on Investment
Suppose you bought 200 shares at $21.25 and sold them 1 year later at $ With a 1% commission rate buying and selling the stock and a current $.21 dividend per share in effect what was your return on investment?
Bought
200 shares at $21.25 = $4,250.00
Commission at 1% =
Total cost $4,
Sold
200 shares at $ = $5,500
Commission at 1% =
Total cost $5,445
Total receipt $5,445.00
Total cost -4,292.50
Net Gain $1,
Dividends (200 x $.21)
Total Gain $1,194.50
$1,194.50
$4,292.50
27.83% Return on Investment

12. Bond Quotations in Newspaper’s
Current Net
Bonds Yield Vol. Close change
IBM
*Bonds are stated as a percent of face amount
Yearly Interest = Face value of bond x stated yearly interest rate
$ = $1, x

13. Bond Quotations in Newspaper’s
Current Net
Bonds Yield Vol. Close change
IBM
Yearly interest: = $ = ( x $1,000) = = 7%
Cost of bond: $1, (1.205 x $1,000)

14. Calculating Bond Yields
Bond yield = Total annual interest of bond
Total current cost of bond at closing
Sue Lawson bought 5 bonds of IBM at the closing price of 1201/2. What is Sue’s interest? (Remember that in dollars 120 ½ is $1,205)
5 bonds x $83.75 interest per bond per year
$ = 6.95% = 7%
$ 6,025
5 x $1,205

15. Why Investors Choose Mutual Funds
Diversification
Professional management
Liquidity
Low fund expenses
Access to foreign markets

16. Net Asset Value Mutual Fund - A portfolio of stocks and/or bonds
Net Asset Value (NAV) - the dollar value of one mutual fund share
NAV = Current market value of fund’s investment - Current liabilities
Number of shares outstanding

17. Commissions: Mutual Funds
Classification Commission charge Offer price to buy
No-load (NL) fund No sales charge NAV
(Buy directly from investment company)
Low-load (LL) fund % or less NAV + commission %
(Buy directly from investment company or from a broker)
Load fund % or less NAV + commission %
(Buy from a broker)

18. Mutual Fund Quotations in Newspaper’s
FUND YTD
NAME NAV CHG % RET
Grln P
Name of Fund
Fund return this year
NAV plus the sales commission
Changes in NAV versus the previous day

19. Problem 21-19
A. PE= $29.25/ $4.80 = 12
B. Yield = $1.40/ $59.25 = 2.4%

20. Problem 21-21 Today: 5 x $1,008.75 (1.00875 x $1,000) = $5,043.75
Yesterday: /8 – 1 1/8= 99 6/8 = 99 ¾
5 x $ (.9975 x 1,000) = -4,987.50 $

21. Problem 21-23
79 ¼% = 79.25% = x $1,000 = $792.50
$57.50/ $ = 7.3%
(5 ¾% = 5.75% = x $1,000 = $57.50)

22. Problem 21-24
A. 88 ¼% = 88.25% = x $1,000 = $882.50
$ x 5 = $ $25.00 = $4,437.50
B x $1,000 = # x 5 = $587.50
C. $117.50/ $ = 13.3%

23. Problem 21-26 $ x
$8,724.00
(.03 x $8,724)
$8, total cost
$ Thursday price
(Wed. price $2.08 lower)
$41.54 Wed. price per share x
$8,308.00
(.03 x $8,308)
$8, total cost

24. Problem 21-29
$1,585 dividends received
X (tax bracket)
$443.80