How Stock And Bond Investments Essay examples

757 Words Jan 27th, 2016 4 Pages
As an investor, there are to forms of investments that can be made to buy your way into a corporation. The two forms of investment that can be made are stock investments and bond investments. According to our studies, stocks is a form of security that represents to the investor a part ownership into a corporation assets and earnings; There are currently two different forms of stocks, common stocks and preferred stocks. In addition to stocks, bonds are debt investments, which allow investors to loan money to a company or government agency for a specific time period. These entities then use the loans to finance a variety of projects and activities. Although investors can use two methods to invest, it is important to understand the similarities and differences of how stock and bond investments are valued.
Stocks and bonds are similar in the fact they are both interest rate sensitive, many that bonds and preferred stock prices tend to decrease when interest rates increase. This typically happens because the future cash flows are discounted at higher interest rates, which then offers a better dividend yield. Furthermore, another similarity between stocks (specifically preferred stocks) and bonds is capital appreciation. Capital appreciation means that both preferred stocks and bonds have fixed payments that are not beneficial if the firm grows in the future. According to our reading, it is very clear that stocks and bonds also are similar in the fact that neither…

Related Documents