Question

briefly explain elements of bonds and stocks . what are the mainn differences between common and preffered stocks

Answer 1

Elements of Bonds

1. Face value

A bond has a Face value which is its basic value and normally its payable to bond holder at maturity of bond.

2. Coupon rate

A bond has coupon rate at which bond holder gets periodic coupon payment from its issuer.

3. Maturity.

Every bond has a maturity, on maturity date bond holder gets bond face value from issuer as a final payment of principal.

4. Yield to Maturity(YTM)

YTM is the rate at which present value of all cash flows becomes equals to Bond value or bond issue price.

5. Issuer

Bonds generally issued by Government , Corporate bodies and Bank etc. to pool the money from market.

Elements of Stock

1. Face value

It is a nominal value of stock based on this value dividend are paid.

2. Book value

It is intrinsic value of Stock i.e "Assets - Liabilities".

3. Market value

It is value of stock quoted in the stock market.

4. Dividend Per Share

It is portion of earning per share distributed to investor of the stock.

5. Earning Per Share

It is earning available to stock holders divided by no. of outstanding stocks.

Main difference between common and preferred stocks

Preference Share has a fixed rate of dividend plus a preferential right over earning in comparison to common stock. However, preference shareholders does not have voting right in the company.

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.