1. 21-1

2. 21-2 Chapter 21 Stocks, Bonds, and Mutual Funds McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

3. 21-3 Read and explain stock quotations Calculate dividends of preferred and common stocks; calculate return on investment Stocks, Bonds, and Mutual Funds #21 Learning Unit Objectives Stocks LU21.1

4. 21-4 Read and explain bond quotations Compare bond yields to bond premiums and discounts Stocks, Bonds, and Mutual Funds #21 Learning Unit Objectives Bonds LU21.2

5. 21-5 Explain and calculate net asset and mutual fund commissions Read and explain mutual fund quotations Stocks, Bonds, and Mutual Funds #21 Learning Unit Objectives Mutual Funds LU21.3

6. 21-6 Cumulative preferred stock - entitles its owners to a specific amount of dividends in 1 year Stock - Shares of ownership in a company Common Stock - Stock that allows owners to have voting rights Stocks Preferred Stock - Does not allow voting rights, but gives preference over common stockholders in dividends

7. 21-7 Stocks Dividends - Payments to shareholders from profit Dividends in arrears - Payments owed to cumulative preferred shareholders

8. 21-8 How Stocks Are Traded Stockbrokers - people who buy and sell stock on the floor of the exchanges. They charge a commission for trading stocks. Stock exchanges - An orderly trading place for stock.

9. 21-9 Stock Quotations in Newspaper’s YTD 52 weeks YLD VOL NET % CHG HI LO STOCK (SYM) DIV % PE 100s LAST CHG +14.7 28.41 14.84 Disney DIS.21.8 32 83871 26.76 -0.11

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

11. 21-11 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 paid0 Preferred stockholders Paid: 0 Owe: 25,000 x $.50 = $12,500 Common Stockholders0 2007 Dividends paid $300,000 Paid for 2006 12,500 Paid for 2007 12,500 Common Stockholders $275,000 $275,000 = $1.10 per share 250,000 shares

12. 21-12 Return on Investment Suppose you bought 200 shares at $21.25 and sold them 1 year later at $27.50. 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% = 42.50 Total cost $4, 292.50 Sold 200 shares at $27.50 = $5,500 Commission at 1% = - 55 Total cost $5,445 Total receipt$5,445.00 Total cost -4,292.50 Net Gain$1,152. 50 Dividends+ 42.00 (200 x $.21) Total Gain$1,194.50 $1,194.50 $4,292.50 27.83% Return on Investment

13. 21-13 Bond Quotations in Newspaper’s CurrentNet BondsYieldVol.Close change IBM 8 3 19 7.0 5 120 1 +1 8 2 Yearly Interest = Face value of bond x stated yearly interest rate $83.75 = $1,000 x.08375

14. 21-14 Bond Quotations in Newspaper’s CurrentNet BondsYieldVol.Close change IBM 8 3 19 7.0 5 120 1 +1 8 2 Yearly interest: = $83.75 = (.08375 x $1,000) =.0695 Cost of bond: $1,205 (1.205 x $1,000)

15. 21-15 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? $418.75 = 6.95% = 7% $ 6,025 5 x $1,205 5 bonds x $83.75 interest per bond per year

16. 21-16 Why Investors Choose Mutual Funds Diversification Liquidity Low fund expenses Access to foreign markets Professional management

17. 21-17 Net Asset Value NAV = Current market value of fund’s investment - Current liabilities Number of shares outstanding Net Asset Value (NAV) - the dollar value of one mutual fund share Mutual Fund - A portfolio of stocks and/or bonds

18. 21-18 Commissions: Mutual Funds ClassificationCommission charge Offer price to buy No-load (NL) fund No sales charge NAV (Buy directly from investment company) Low-load (LL) fund 3% or less NAV + commission % (Buy directly from investment company or from a broker) Load fund 8 1 % or less NAV + commission % (Buy from a broker) 2

19. 21-19 Mutual Fund Quotations in Newspaper’s FUND YTD NAME NAV CHG % RET Grln P 18.43 -0.09 4.1