Bonds vs. Stocks- 03/22/17
Bonds:
-Loans or IOU’s that represent debt that the government or a corporation must repay to an investor
-The Bond holder has NO OWNERSHIP of the company
How are the values of bond determined?
-First, if a corporation issues then sells a bond, it’s liability for the corporation and asset for the buyer
-If nominal interest rate increases, bonds decrease
Stocks:
-Stock owners can profit in two ways
1) Dividends: portions of a corporation’s profits are paid out to stockholders
-As the profit increases, the dividend increases
2) Capital gain: earned when a stockholder sells stock for more than what he/she paid for it
-Capital loss: when a stockholder sells stock at a lower price than the purchase price
-Loans or IOU’s that represent debt that the government or a corporation must repay to an investor
-The Bond holder has NO OWNERSHIP of the company
How are the values of bond determined?
-First, if a corporation issues then sells a bond, it’s liability for the corporation and asset for the buyer
-If nominal interest rate increases, bonds decrease
Stocks:
-Stock owners can profit in two ways
1) Dividends: portions of a corporation’s profits are paid out to stockholders
-As the profit increases, the dividend increases
2) Capital gain: earned when a stockholder sells stock for more than what he/she paid for it
-Capital loss: when a stockholder sells stock at a lower price than the purchase price
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