Question

Compare the risks and returns of a 10-year bond, a preferred stock and a common stock issued by a listed company. Explain the reason(s).

Answer 1

Comparing Bond, Preferred Stock and Common Stock :
Risk & Reward :	A bond normally issued by Government, so it is less risky than Preferred Stock and Common Stock.
	But Bod it self having some risk which can't be ignore. Some risk & rewards are :
	(i) Interest rate risk
	(ii)Reinvestment Risk of earning interest at lower yield rate.
	(iii) Risk of default in repayment or interest on timely manner
	(iv) Inflation Risk when economic face increased price .
	(v) but having Regular interest income.
	Preferred Stock is less risky than Common Stock. Some risk & reward are:
	(i) Regular preferential dividend
	(Ii) Preference right over common stock for getting payment in case of
	Lquidation, etc.
	(iii) No right in growth & profit and no right to vote.
	Common Stock is higher risky due to the following reason are:
	(i) Fear of no regular dividend. As in case company in loss.
	(Ii) Fear of reduction of ownership share due to new issue of same class of stock.
	(iii) Participation in loss of the company
	Common Stock having higher Return also due to the following reason are:
	(i) Right of participation in voting right
	(ii) Participation in profit & growth of the company