difference between stocks and bonds
The difference between stocks and bonds is as follows:
1) with the shares forming the share capital of the company, and through bonds - debt capital;
2) The shares may be issued only by joint stock companies, and bonds - other economic, and not only economic entities;
3) bonds, unlike stocks, have a limited circulation, after which blanked. The action is maintained throughout the life of the company;
4) difference between stocks and bonds bonds have an advantage over the shares in the sale of property of their owners. If the question of payment of interest on bonds and dividends, the interest is paid first and only then the dividends;
5) the liquidation of the company shareholders receive only the portion of the property that remains after payment of all debts, including on bonds;
6) shares give their owners a certain amount of rights, including the right to participate in the management of the underlying company, bonds, being an instrument of the loan, such a right, do not give.
difference between stocks and bonds
The right to issue bonds may be granted only to creditworthy issuers.
The bonds have a nominal household name and market price.
Nominal bond price printed on the bonds, and represents the amount that is taken on loan and must be retained beyond the term of the bond issue. Interest on the bond is set to face value, the gain value of the bond is calculated as the difference between the face value at which the bond will be repaid, and the purchase price of the bond. For a nominal price of bonds is a very important parameter, whose value does not change over the life of the bond issue. It is for a fixed amount of initial nominal bonds will be extinguished at the end of their treatment. Since the issuance of bonds to maturity and they are bought and sold on an established market prices.
Market price at the time of issue may be below par, par and is at a premium. In the future, the market price of bonds is determined based on the situation prevailing in the bond market and the financial market as a whole at the time of sale, and the prospects of gain at maturity the face value of the bond (the closer to the time of purchase bonds for a period of repayment, the higher its market value) and the right to a regular fixed income (the higher the income that a bond, the higher its market value). Value of the market price of a bond, expressed as a percentage of its face value is called the bond rate.
Bond holders bring income, which consists of the following elements:
periodic interest payments. Generally, interest on bonds payable 1 - 2 times a year. At the same time, the more often interest payments are made, the greater the potential return brings bond since received interest payments can be reinvested. From the issuer of the bond depends very much on the amount of interest on the bonds, the company more stable and reliable issuing bonds, the lower the interest rate offered. Besides difference between stocks and bonds, there is a relationship between interest income and maturity of bonds: the more distant maturity, the higher the interest rate, and vice versa:
- The value of a bond for the relevant period;
- Income from the reinvestment of interest earned.
The bonds have a higher compared to other kinds of securities, reliability. Bond yields less exposed to cyclical and not so dependent on market conditions, such as earnings per share.
