Question

Discuss the differences between common stocks, preferred stocks and bonds in terms of “issuer”, “relationship with the issuer”, “voting right”, “maturity”, “return guarantee” and “priority of repayment”.

Answer 1

Difference between common stocks, preferred stocks and bonds:

Basis	Common stocks	Preferred stocks	Bonds
1) Issuer	It is issued by a company in alternative to a debt or preference share.	It is also issued by company in alternative to debts or common shares.	It is also issued by a company alternative to a equity or preference share.
2) Relationship with the issuer	They become shareholders of the company with voting rights whose share they purchase	Ther are also shareholders of a company but with no voting rights.	Here the relationship is of investor or debt owner with no such voting rights.
3) Voting rights	They have voting rights	They do not have voting rights	They do not have voting rights
4) Maturity	It does not has a maturity period. Whenever shareholders feels to sell their shares, they can.	It have or may not have a maturity period as some preference shares are non redeemable but still maximum they can be kept holded for 20 years and not more than that.	Bonds have a maturity period after which they can be redeemed and this period is decided at the time of purchasing the bond.
5) Return guarantee	There is no guarantee on return as it provides ownership, it is most risky. If the company would have profits, one would get dividends which are also not fixed, or there are chances of not even receiving those dividends.	There is a guarantee that they would be paid on a fixed rate which was decided at the time of purchasing	There is definitely guarantee in bonds. A person receives interest based on coupon rate every year and in the final year he would receive face value plus interest on coupon rate.
6) Priority of repayment	They are being paid at the last after preference share holders and bond holders.	They get repayed after bondholders but before common shareholders	They get paid at first before common shareholders and preferred shareholders.