What is the Bid price of the stock?What is the Bid price of the stock?

Bid Price – represents the highest Bid Price – represents the highest amount that an investor is currently amount that an investor is currently willing to pay to acquire a board lot willing to pay to acquire a board lot of shares or a particular bond.of shares or a particular bond.

What is a board lot?What is a board lot?

The number of shares included in a The number of shares included in a single transaction as determined by single transaction as determined by a particular stock exchange. On the a particular stock exchange. On the TSE board lots are defined as follows:TSE board lots are defined as follows:

Board lot continued…Board lot continued…

Price Per Share Board LotUnder $0.10 10000.10-$1.00 500over $1.00 100

What is the ask price?What is the ask price?

Represents the lowest amount that Represents the lowest amount that an investor is currently willing to an investor is currently willing to accept (sell) for a board lot of shares accept (sell) for a board lot of shares or a particular bond.or a particular bond.

For a transaction to occur either the For a transaction to occur either the buyer must increase his/her bid price buyer must increase his/her bid price to the ask price, or conversely the to the ask price, or conversely the seller must drop his/her ask price to seller must drop his/her ask price to the bid price. Otherwise, there is no the bid price. Otherwise, there is no sale.sale.

In the real world, most orders to buy In the real world, most orders to buy and sell stock are market orders and sell stock are market orders (execute transaction immediately at (execute transaction immediately at the prevailing market price). the prevailing market price). Therefore, a buyer submitting a Therefore, a buyer submitting a market order to buy would pay the market order to buy would pay the current ask price, and the seller current ask price, and the seller submitting a market order to sell submitting a market order to sell would receive the current bid price.would receive the current bid price.

P/E RatioP/E Ratio

P/E = Market price per share/ EPS P/E = Market price per share/ EPS wherewhere

EPS = Net income for year – pref. EPS = Net income for year – pref. dividendsdividends

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# shares of common stock # shares of common stock outstandoutstand

P/E Ratio…P/E Ratio…

The ratio allows investors to compare The ratio allows investors to compare one stock investment to another in one stock investment to another in the context of how many dollars the context of how many dollars must be expended (price) to acquire must be expended (price) to acquire one dollar’s worth of the firm’s one dollar’s worth of the firm’s earnings. Growth stocks usually have earnings. Growth stocks usually have very high P/E ratios (50:1 or >) very high P/E ratios (50:1 or >) whereas “blue-chip” stocks generally whereas “blue-chip” stocks generally have ratios in the range of 5:1 - 20:1.have ratios in the range of 5:1 - 20:1.

YieldYield

The yield figure in the newspaper The yield figure in the newspaper compares the yearly dividends in the compares the yearly dividends in the past twelve months to the stock’s closing past twelve months to the stock’s closing price.price.

Ex. Algoma CentraEx. Algoma Centra Dividends - Dividends - $1.00$1.00

Closing priceClosing price $52.00$52.00

Stock yield = $1.00/$52.00Stock yield = $1.00/$52.00

= 1.92% (before tax)= 1.92% (before tax)

Rough Bond YieldsRough Bond Yields

Yield = Annual Interest/ Bond + Annual capital gain/bondYield = Annual Interest/ Bond + Annual capital gain/bond

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Purchase Price / BondPurchase Price / Bond

Where:Where:

Annual Interest = Coupon Rate * Face ValueAnnual Interest = Coupon Rate * Face Value

Annual CG = Value @ Mat – purchase priceAnnual CG = Value @ Mat – purchase price

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# years to final maturity# years to final maturity

Rough Bond Yields…Rough Bond Yields…

Assumes that the investor will hold Assumes that the investor will hold the bond until the date of final the bond until the date of final maturity.maturity.

Allows one to calculate the actual Allows one to calculate the actual amount of one’s capital gain or loss amount of one’s capital gain or loss that would be realized in relation to that would be realized in relation to the price at which the investor the price at which the investor acquired the bond.acquired the bond.

Expanded FormulaExpanded Formula

Bond’s coupon rate never varies Bond’s coupon rate never varies throughout the entire life of the throughout the entire life of the bond, but the price will vary in bond, but the price will vary in response to interest rate fluctuations response to interest rate fluctuations in the economy.in the economy.