The Underlying Similarities Between Bonds And Stocks (Essay Sample)

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Stock vs. bonds
Stock and bonds signify diverse ways that a company can use to acquire cash either for development or to increase its operations. In essence, stock refers to a security that represents ownership in a company. Bonds, on the other hand, is the money a person or investor loans to a corporation borrowed for a certain duration with fixed interest rate. For instance, when a company gives out its share, it is vending a part of it in interchange of money. Bonds’ prices remain determined on how the ratings of an entity are. Bonds are a type of a loan; a bond holder provides a borrower with funds to invest on long term investments. Therefore, this paper will discuss in detail the underlying similarities between bonds and stocks and how they are issued as well as some of their dissimilarities.
Bond and shares have some similar characteristics, for instance, both are categorized as securities. In essence, most of the bonds are more similar to stocks, and in such, they are tradeable securities. This leads to a capital market where bonds are traded in the bond market and the stocks in the stock market. However, they are quite different in a number of characteristics such as; stocks stand to be ownership incentives while bonds are basically debts. When an organisation gives out a bond, it is lending an obligation with a promise to issue interest for use of that money. Nonetheless, once an entity issues a stock, it is lending a part of it in exchange for cash.
Stocks are basically shares of a distinct company that offers an ownership stake in a company (Bali 818). For example, assuming that an organization has overcome all challenges and has now become fully successful. Its vendors may, therefore, desire to increase its operations but then are incompetent in doing so merely because of the profits that are gained in that business. The owners therefore, refer to commercial marketplaces on the assistance of some monetary assistance. One of the ways to doing this is by splitting the business to shares and sell these shares into an exposed market a method referred to as an ‘initial public offering’ (Bali 818). Therefore, someone who purchases stock of a company however small is actually acquiring a share into that company that makes him or her a part owner of the company. As a result, a stock is hence a kind of an equity. On the other hand, bonds are known to be a kind of a debt. A corporation or an individual who wishes to raise money, ask for cash from the open market where later an interest is paid to the bondholders.
The other similarity that could be said is that both markets are regulated by the U.S. Securities and Exchange Commission. They are however vastly different depending on investors where a separately part of a stock signifies a possession in an entity signifying that stockholders in profit and losses of a company can gain if it functions well. However, an investor runs under a certain uncertainty if the company performs poorly or rather goes bankruptcy (Bali 819). Nevertheless, individual stocks tend to be on the riskier end in respect to their instability and at a peril where a stakeholder may possibly mislay money in a short term. Nevertheless, they tend to offer greater long terms profits and thus stocks are anticipated by investors with a longer speculation pro...