SH1612

Stocks and bonds

I. Stocks
Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the
corporations assets and earnings. A corporation sells shares of stocks to investors to finance its operations.
Companies can use stocks as a source of funds. The company will sell a portion of their company through
stocks or shares. These terms can be used interchangeably. The people who bought stocks from a
company are called stockholders or shareholders. Since they have bought shares of the company, they
are considered as part-owners of the company.
Stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings.
A company profits by selling stocks to shareholders. The shareholders in turn, profit from a part of what
the company makes. Being a shareholder means that one is entitled to a portion of the company's profits
and have a claim on assets. The more shares you own, the larger the portion of the profits you get.
When buying or selling stocks, an investor needs a stockbroker. A stockbroker functions as a middleman
between the two transacting parties buying and selling stocks. The broker charges a commission called
brokerage fee every time s/he sells or buys stocks for the investors.
Summary of Formula:
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/Loss =
II. Bonds
A bond is a debt covering a long term such as 10, 20, or more years. The investor is the bondholder who is
guaranteed to be repaid at a specified future date. A company that needs money can borrow from investors by
selling bonds.
Face Value or Par Value - The amount or worth of the bond
Interest Rate - This is the semi-annual rate by which the holder is paid twice a year
Maturity Date or Duration - Indicates the date or length of time of the validity of the bondThe interest paid
on a bond is calculated using the simple interest formula, = where the principal is the par value.
Bond Market is a financial environment where bond trading is situated
To calculate the market value of a bond, find the product of the price quotation and the par value of the bond.
The price quotation is usually expressed in decimal or mixed number.
Market Value=Par Value Price Quotation
The bond market price quotation represents the percent of par value. It is usually expressed in decimal or mixed
number or percentage.
Market value is the amount the investor actually pays for the bond.
A bond sold at a market value higher than its par value is said to be sold at premium.

08 Handout 1

*Property of STI
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