The Similarities Greatly Outweigh the Differences: Stocks versus Bonds (Essay Sample)

Stocks versus Bonds
Stocks and bonds are financial products traded in the financial market. The market has trading regulations, costs and market forces that determine the price of stocks and bonds (Levy, 372). These forces are demand and supply. The financial market is of different types based on the type of financial product. The types are money markets, capital markets, and derivative markets. The trade of stocks and bonds takes place in the capital market between both the private and public sectors to raise funds. Companies sell stocks and bonds to raise money to support their daily operations and long-term investment plans. While stocks and bonds have their nature in common they are entirely different, in fact, they differ in characteristics such as the exchange system, type of instrument and the issuer.
Stock markets, as opposed to bond markets, have a centralized exchange system. The sale and purchase of shares take place in one central exchange, and there is no competitor. An example of a central stock exchange is the New York Stock Exchange (NYSE) (White, 30). Investors buy and sell shares at the single price listed on the exchange. On the other hand, bonds have a decentralized market where investors have access to the ask prices and deal directly with other investors. Decentralized bond markets are perilous because they lack transparency, are dealer based and may have differences in bond valuation by the various investors.
Stocks are an equity instrument while bonds are debt investments. Stocks represent a part ownership of a company, and the stockholder is eligible to a portion of the company’s earnings and assets. Equity represents the portion of income eligible to a stockholder. In comparison, bonds are a debt investment in which an investor loans money to a public or private entity for a determined period at a fixed interest rate (Asquith, 174). The companies fund various projects and investment plans with the debt they acquire from bonds purchase.
While corporations and joint - stock companies issue stocks, governments, and credit institutions issue bonds. The companies issue shares to raise funds, and they represent the amount of money invested by the stockholders in the corporation. When companies issue new stocks, it is an initial public offer, and it trades in the primary market. On the contrary, governments and credit institutions, which are authorities in the public sector, issue bonds, and the issuer, owe the bondholder a debt (Seiler, 442).
However, stocks and bonds are of the same nature. They are financial securities traded in the financial capital market (Levy, 364). Stocks and bonds are securities because they represent the right to receive future benefits from an investment. The right and guarantee to receive financial benefits in future give an individual financial security. It provides a means to maintain an individual’s living standards in the future.
Stocks and bonds offer...