Math in Our World

Section 8.6
Stocks and Bonds
 Learning Objectives
 Find information from a stock listing.
 Compute the P/E ratio for a stock.
 Compute the total cost of a stock purchase.
 Compute the profit or loss from a stock sale.
 Stocks and Bonds
In order to get information about a certain stock,
you can refer to a stock table. In this case, a stock
listing for a company called Computer
Programming and Systems, Inc. will be used as an
example.
 Stocks and Bonds
The first two columns give the highest and lowest
selling prices for one share of stock in this
company during the past 52 weeks.

Dividends paid Sales volume

per share last in 1000s for
year. yesterday.

Symbol company Percent

uses. Yield.
 Stocks and Bonds
The annual percentage yield is the dividend per
share divided by the current price. This percent
can be compared to other stocks as a measure of
performance.

Percent
Yield.
 Stocks and Bonds
The P/E column is the price-to-earnings ratio. It is
the ratio of yesterday’s closing price of the stock
(found in the CLOSE column) to its annual
earnings per share. Closing Price –
last price traded
yesterday.

The NET CHG is the change in the price Net Change

of the stock between the day before in Closing
yesterday and yesterday at closing time. Price.
 EXAMPLE 1 Reading a Stock Listing

The following is a stock listing for the Terex

Corporation. Use the listing to answer the questions.

(d) If you owned 250 shares of stock, how much did

you make in dividends last year?

SOLUTION
250 x $0.24 = $60
 EXAMPLE 1 Reading a Stock Listing

The following is a stock listing for the Terex

Corporation. Use the listing to answer the questions.

(e) How many shares were traded yesterday?

(f ) What was the closing price per share the day
before yesterday?
SOLUTION
(e) 7,143 x 1,000 = 7,143,000
(f ) $24.51 + 0.06 = $24.57
 P/E Ratio
The P/E ratio of a stock is a comparison of
the current selling price to the company’s
earnings per share.

Yeste
s
Clo Pr

P/E
Ratio
Annua
Earn
per
sh
 EXAMPLE 2 Computing a P/E Ratio

If the annual earnings per share for Terex is $0.98,

find the P/E ratio.
SOLUTION
Yester
s
Clo Pr

P/E
Ratio
Annua
Earn
per
sh
$24.51
 
25
(roun
$0.98
This means that the price of a share of stock is 25 times
the company’s annual earnings per share. In general, the
lower the P/E ratio is, the better the investment.
 Annual Earnings Per Share
Knowing the price per share of stock and the
P/E ratio, you can find the annual earnings
per share for the last 12 months by using the
following formula:
Yes
s
ClP

Annua
Earni
per
share
P/E
R
 EXAMPLE 3 Computing Annual Earnings
per Share
If the closing price for Kellogg’s stock was $44.23
and the P/E ratio is 15, find the annual earnings
per share for last year.
SOLUTION
Yes
s
ClP

Annua
Earni
per
share
P/E
R
$
44.23
 
$2.95
15
 Current Yield for Stock
The current yield for a stock can be
calculated by using the following formula:

Annu
Div
pe
Sh

Current
Stock
d
Clos
Pri
of
St
EXAMPLE 4 Computing Yield for a Stock

For the CPSI stock, the annual percent yield is

6.5%. Verify the current yield by using the
preceding formula.
SOLUTION
The dividend per share is $1.44 and the closing
price is $22.25:
AnnuDiv
pe Sh

Current
Stock
d
Clos Pri
of
St
$1.44
 
0. 
065
6.
5%
$22.25
 EXAMPLE 5 Finding the Total Cost of
Buying Stock
Shares of Apple Computer (AAPL) closed at
$12.89 on April 1, 2004. Suppose that an investor
bought 600 shares at that price using a broker that
charged a 2% commission. Find the amount of
commission and the total cost to the investor.
SOLUTION
Step 1 Find the purchase price.
600 shares x $12.89 = $7,734.00
 EXAMPLE 5 Finding the Total Cost of
Buying Stock
SOLUTION
Step 2 Find the broker’s commission.
2% of purchase price = 0.02 x $7,734.00
= $154.68

Step 3 Add the commission to the purchase price.

$7,734.00 + $154.68 = $7,888.68
The investor paid a total of $7,888.68 for the transaction.
 EXAMPLE 6 Finding the Amount Made from
Selling Stock
On May 1, 2008, shares of Apple stock reached
$192.24. If the investor in Example 5 sold all of his
Apple stock at that point, and the broker also
charges a 2% commission on sales, find the
commission, proceeds, and the amount of profit
made by the investor.
SOLUTION
Step 1 Find the total amount of the sale.
600 shares x $192.24 = $115,344.00
 EXAMPLE 6 Finding the Amount Made from
Selling Stock
SOLUTION
Step 2 Find the broker’s commission.
2% of purchase price = 0.02 x $115,344.00
= $2,306.88
Step 3 Subtract the commission amount from the total
amount of the sale to get the proceeds.
$115,344.00 – $2,306.88 = $113,037.12
Step 4 The profit is the proceeds minus the total cost from
Example 5.
$113,037.12 – $7,888.68 = $105,148.44