Lesson 2: Investment in Stocks and Bonds

Vocabulary practice flashcards covering stock and bond fundamentals, security classifications, calculation formulas, PSE market sectors, and government debt instruments from Lesson 2: Investment in Stocks and Bonds.

Start-up Capital

Funds initially invested in a business enterprise to begin its operations.

Securities

Negotiable instruments of ownership or debt issued by a corporation to raise capital and finance its goals, specifically common stock, preferred stock, and bonds.

Stocks

Shares of ownership in a company (also called 'shares' or 'equities') that make the holder a part-owner who participates in the company's growth, profits, or losses.

Stock Certificate

A formal legal document that certifies an individual's or entity's ownership of a specified number of shares of capital stock in an incorporated company.

Common Stock

A security (also known as 'ordinary shares') purchased for participation in corporate profits and voting control over company management, with variable dividend payments and a secondary claim to earnings.

Preferred Stock

A security (also known as 'preference shares') granting the holder a prior claim on assets and earnings with a fixed dividend, but typically without voting rights.

Total Common Dividend

The total amount of declared dividend allocated to common shares, calculated as: $\text{Total Common Dividend} = \text{Total Dividend} - \text{Total Preferred Dividend}$.

Dividend per Share (DPS)

The dividend payment allocated to each common share, determined by the formula: $\text{DPS} = \frac{\text{Total Common Dividend}}{\text{Number of Shares}}$.

Preferred Dividend per Share

The dividend allocated per preferred share, calculated by the formula: $\text{Dividend per Share (Preferred)} = (\text{PAR Value}) \times (\text{Dividend Rate})$.

Stock Yield Ratio

A financial metric expressing dividend return relative to share price, calculated as: $\text{Stock Yield Ratio} = \left(\frac{\text{DPS}}{\text{MV}}\right) \times 100\%$, where $\text{MV}$ is the market value of the stock.

Class A Shares

Common stocks that can be exclusively traded by Filipino investors.

Class B Shares

Common stocks that can be bought and sold by both Filipino and foreign investors.

Financial Sector

A sector on the PSE that includes companies engaged in banking, investments, and finance.

Industrial Sector

A sector on the PSE consisting of companies involved in electricity, energy, power, water, food, beverage, tobacco, construction, infrastructure, allied services, and chemicals.

Holding Firms Sector

A sector on the PSE that comprises companies whose primary purpose is to control, manage, or own partial or complete interests in other companies rather than producing goods or services directly.

Blue Chip Stocks

Shares of well-established, financially sound companies with a proven history of regular dividend payments in both good and bad times, offering modest but dependable returns at relatively low risk.

Income Stocks

Shares of companies that demonstrate steady profits and a consistent track record of paying regular dividends, generally exhibiting low volatility.

Growth Stocks

Also called 'glamour stocks,' these are shares of corporations expected to grow earnings at an above-average rate relative to the market; they typically reinvest earnings into capital projects rather than distributing dividends.

Defensive Stocks

Shares that provide regular dividends and stable earnings regardless of overall market conditions or downturns, typically representing essential goods providers like food, oil, and utilities.

Cyclical Stocks

Shares that are highly sensitive to business cycles and economic conditions, experiencing reduced demand during downturns and increased demand during economic peaks.

Speculative Stocks

High-risk, highly volatile stocks that rise rapidly during strong economic expansions and fall sharply when growth decelerates.

Philippine Stock Exchange (PSE)

The sole corporation operating the local stock market in the Philippines, established in 1927 as the Manila Stock Exchange.

Traditional Stockbroker

A broker that assigns a licensed salesperson to manage a client's account and execute buy/sell orders via written instructions or telephone calls.

Online Stockbroker

A brokerage platform that interacts with investors primarily via the Internet, allowing orders to be placed directly online.

Customer Account Information Form (CAIF)

The formal onboarding application required by a stockbrokerage firm to establish a trading account, submitted alongside valid identification, specimen signatures, and proof of billing.

Settlement Date

The agreed deadline by which payment or stock delivery must be completed; typically $T+3$ (three working days after transaction) for traditional brokers, and on the transaction date for online brokers.

Bond

A fixed income instrument of indebtedness representing a loan made by an investor to a corporate or governmental borrower, making the investor a creditor.

Treasury Bills

Short-term Philippine government securities with tenors ranging from $91$ to $364\text{ days}$, denominated in Php, that pay no regular interest and are issued at a discount.

Spread

The income earned on a Treasury bill, defined as the difference between the discounted purchase price and the full face amount repaid by the government at maturity.

Fixed Rate Treasury Notes (FXTN)

Php-denominated Philippine government debt instruments with maturities ranging from $2$ to $23\text{ years}$ that make semi-annual interest payments.

Retail Treasury Bonds (RTB)

Longer-term, Php-denominated Philippine government bonds with maturities between $2$ and $24\text{ years}$ that pay interest on a quarterly basis.

Republic of the Philippines (ROP) Bonds

USD-denominated debt instruments issued by the Philippine government with tenors spanning $3$ to $25\text{ years}$ and varying interest payment terms.

Credit Risk (Risk of Default)

The risk that a bond issuer fails or is unable to pay scheduled interest on due dates or return the principal amount at maturity.

Interest Rate Risk

The risk that occurs when the benchmark interest rate set by the Bangko Sentral ng Pilipinas rises, causing the market yield and value of existing bonds to decrease.