Question

1. What are the features, advantages and disadvantages and of common stock?
2. What are the features, advantages and disadvantages of preferred stock?
3. What are the features, advantage and disadvantages of bonds?
4. What are bond ratings? Who issues them? How do they help investors?

Answer 1

1. Common stocks are those stocks which gives the the ownership rights to a person. It helps in investing in a business with limited liability. It also provides a voting rights in a company.

Advantage of common stock is that it helps in gaining ownership in a company and liabilities are also limited. There is an easy buying and selling process and there are voting rights also.

Disadvantages of common stocks are that it will have the last claim on the Asset. The payment of dividend is is also not mandatory, in case of common stock

2. Preferred stocks are those stocks which will have a preference in the claiming of the assets as well as they have got both debt and equity element associated with them.

Preferred stock help the investor in receiving dividend and will also provide cumulative shares and the cost of raising preference share is lower.

Disadvantage of preference share is that is does not have the voting rights and the time to maturity can also be problematic for the investors, and many companies do not put their profit in the dividend. Preferred stocks always create unlimited upside potential.

3. Bonds are debt financing which are generally viewed as a safer investment than stocks. ownership of bonds is associated with uniform payment in the form of interest.

the advantages associated with bond are that they will have always a fixed coupon rate and they will be paid irrespective of the condition of the company, and they will also be having higher claim on the Assets and they are mostly protected kind of securities.

the disadvantages associated with the corporate bond is that it has a Credit risk and if it is going out of the business line, bondholders may not be receiving interest payment.

another risk associated with the corporate bond in event risk and these event may affect the company's ability of generation of the cash flows and bond payment.

4 . Bond rating means the ratings which have been assigned to different kind of bonds by agencies who are credit rating agencies and these ratings will determine the quality of the bonds and credit payment capability of the bond.

These bonds are issued by the credit rating agencies like Moody's and Standard and Poor.

these ratings help the investor to select the best quality of bond and they also help the investor in selecting those bonds who have minimum risk exposure and maximum secured assurance, because these credit rating will determine the quality of the credit risk associated with the bond and the event risk. So an investor can make informed decisions by following various credit rating agencies