Common Stocks Versus Bonds : Common Stock Essay
Common stock is a type of security that represents ownership and expressed in shares in a corporation. The holder of common stock is more volatility and have the voting right to elect the board of directors, employees, et al., and they have rights to the periodic financial reports of a corporation to know their performances. Although common stockholders have lower priority in the events of liquidation, that is, they receive their proceeds of liquidation after bondholders, preferred shareholders and creditors have claimed their earnings.
Therefore, a common stock yield is the ratio of annual dividends paid over the past year or expected for the next year divided by the current share price. For example, a stock expected to pay out $1 in dividends over the next year and is currently trading for $50; its dividend yield is 1/50, which is equal to 0.02 or 2%. However, it is vital to the investors despite its downside, they bear a greater amount of risk when related to preferred stock and bonds and in the long run, common stock yield exceeds bonds and preferred shares. Lastly, the investors seeking more for payouts from common stocks instead of price appreciation (the higher the stock price the lower the stock yield) happen to incur higher-yielding stocks over the lower-yielding stock. (Weinberg, 2011)
Bond is defined as the debt investment similar to I.O.U, such as municipal, corporate, foreign government bond, et al. and in return for the debt…