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

3. Stocks, Bonds, and Mutual Funds
#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

4. Stocks, Bonds, and Mutual Funds
#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

5. Stocks, Bonds, and Mutual Funds
#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

6. 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

7. Dividends - Payments to shareholders from profit
Stocks
Dividends - Payments to shareholders from profit
Dividends in arrears - Payments owed to cumulative preferred shareholders

8. 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.

9. Stock Quotations in Newspaper’s
YTD weeks YLD VOL NET
% CHG HI LO STOCK (SYM) DIV % PE s LAST CHG
Disney DIS

10. Stock Quotation Calculations
Stock yield = Annual dividend per share = $.21 = .8%
Today’s closing price per share $26.76
Earnings per share = Annual earnings Total number of shares outstanding
PE Ratio = Closing price per share of stock = $ = 32
Annual earnings per share $.84

11. Dividends on Preferred and Common Stock
Stock records for Sony Corporation show the following:
Preferred stock issued: 25,000 shares In 2006, Sony paid no dividends
Preferred stock cumulative at $.50 per share In 2007, Sony paid $300,000 in dividends.
Common stock issued: 250,000 shares
2006
Dividends paid 0
Preferred stockholders Paid: 0
Owe: 25,000 x $.50 = $12,500
Common Stockholders 0
2007
Dividends paid $300,000
Paid for ,500
Paid for ,500
Common Stockholders $275,000
$275, = $1.10 per share
250,000 shares

12. 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

13. Bond Quotations in Newspaper’s
Current Net
Bonds Yield Vol. Close change
IBM
Yearly Interest = Face value of bond x stated yearly interest rate
$ = $1, x

14. Bond Quotations in Newspaper’s
Current Net
Bonds Yield Vol. Close change
IBM
Yearly interest: = $ = ( x $1,000) = .0695
Cost of bond: $1, (1.205 x $1,000)

15. 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?
5 bonds x $83.75 interest per bond per year
$ = 6.95% = 7%
$ 6,025
5 x $1,205

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

17. 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

18. 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)

19. Mutual Fund Quotations in Newspaper’s
FUND YTD
NAME NAV CHG % RET
Grln P