![]() ![]() Also, with stock, a company is not obliged to pay mandatory interest rates as does the issuer of debt instead, it can generate dividends to its stock buyers. This is a significant con for bond issuers. Issuing bonds, companies are bound to pay back the interest regardless of their financial security and status. Aside from these pros, the major cons for issuers are the pressure for generating the required profit. The issuers of stocks and bonds both enjoy funds that they raise after issuing. The owners of the former have more rights in a company than the investors in the latter. Stocks that can be owned by buyers are distinguished by two types – common and preferred. In the books of the buyer, stocks are carried as certificates of ownership, while bonds do not involve ownership and are presented as certificates that oblige the buyers to pay back the agreed-upon rate of interest to the issuer at the end of the established period of time (Goodman, 2018). To sum up, the level of risk and interest rate represents the main differences between stocks and bonds. The difference is in the volume of profit bonds are able to generate, which is significantly lower than that of stocks. In contrast, bonds are much more secure and provide a guaranteed return on investment. In case of the bankruptcy of a company, all of the investment in its stock may be lost. Also, if a company faces losses, its stock owners do as well. If the company enjoys high revenues and shows excellent results during a particular period, its investors benefit from it. Specifically, profit from stocks is directly connected to the success of the company to which it belongs. However, this type of investment also exposes them to risks. ![]() Purchasing stocks in companies, investors become able to create more profit and generate a better interest. At the same time, bonds stand for debt in the form of money borrowed in the public market by an entity that intends to raise funds (Kenny, 2017). A decision to issue stocks is usually made in a company when the volume of profit that it generates on a regular basis is insufficient in regard to funding this company’s desired activities and expansion.įunds raised by means of issuing stocks present the required addition to assets. In that way, stocks represent shares of companies which they are ready to sell in exchange for money offered by the investors who purchase the stocks (Morah, 2017). In order to explain the differences between stocks and bonds, it is important to explore each of these concepts separately and provide a definition. ![]()
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