Question

1. If you purchase a share of stock, this entitles you to what two important rights?

2. Briefly define a (straight) bond. 2~3 sentences. (Please do not copy content directly from unreliable sources online)

Answer 1

1)

If we purchase a stock then that entitles few important rights. Firstly, purchase a share of stock provides right to share in the net profit of company. Whenever a shareholder purchase share of a company then investor is actually purchasing the rights in net profit of company. Even if a shareholder is holding a single share, he is having right in net profit. Net profit earned by company is distributed as dividend and then shareholder are having the right to receive dividend if dividends are declared by company.

Secondly, Purchase a share of stock provide voting rights to share holders.If a shareholder is holding a share of company then he is having rights to vote at the annual general meeting or any other meeting of company. He is having right to vote for deciding important matters related to company at general meeting such as Appointment of Directors and Auditors, Fixation of remuneration of Auditors, Adoption of financial statements etc.

2)

Straight Bond as the name suggests is a bond that pays regular interest at certain intervals and redeem at the end of maturity.For example, A bond having face value of $1000 pays interest of 10% per year for 5 year and redeem at par. This is an example of straight bond where annual coupon of 1000*10% = $100 is paid for 5 years and at the end of 5 years, bonds will be redeemed at $1000. If coupon rate of bond and market interest rate is same then bond will be traded at par.