Name: April Shayne P. Jalique Gr.

/Sec: ICT- LOVE

Teacher: Ma’am Escal Subject: General Mathematics

LESSON 31
STOCKS ANDS BONDS

DEFINE STOCKS AND BONDS

Stocks and bonds ​are certificates that are sold to raise money for starting a
new company or for expanding an existing company. Stocks and bonds are also
called securities, and people who buy them are called investors.

DIFFERENTIATE STOCKS AND BONDS

The difference between stocks and bonds is that ​stocks​ are shares in the
ownership of a business, while ​bonds​ are a form of debt that the issuing entity
promises to repay at some point in the future.

● STOCKS
Stock also called preference share is ​a​ share which entitles the holder to a fixed
dividend, whose payment takes priority over that of common-stock dividends.

Different Types of Stocks 

There are two main types of stocks: common stock and preferred stock.

Common Stock 

Common stock is, well, common. When people talk about stocks in general they are
most likely referring to this type. In fact, the majority of stock issued is in this form. We
basically went over features of common stock in the last section. Common shares
represent ownership in a company and a claim (dividends) on a portion of profits.
Investors get one vote per share to elect the board members, who oversee the major
decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns
than almost every other investment. This higher return comes at a cost since common
stocks entail the most risk. If a company goes bankrupt and liquidates, the common
shareholders will not receive money until the creditors, bondholders, and preferred
shareholders are paid.

Preferred Stock 
Preferred stock represents some degree of ownership in a company but usually doesn't
come with the same voting rights. (This may vary depending on the company.) With
preferred shares, investors are usually guaranteed a fixed dividend forever. This is
different than common stock, which has variable dividends that are never guaranteed.
Another advantage is that in the event of liquidation preferred shareholders are paid off
before the common shareholder (but still after debt holders). Preferred stock may also
be callable, meaning that the company has the option to purchase the shares from
shareholders at anytime for any reason (usually for a premium).

Some people consider preferred stock to be more like debt than equity. A good way to
think of these kinds of shares is to see them as being in between bonds and common
shares. (If you don't understand bonds make sure also to check out our bond tutorial.)

Different Classes of Stock 

Common and preferred are the two main forms of stock; however, it's also possible for
companies to customize different classes of stock in any way they want. The most
common reason for this is the company wanting the voting power to remain with a
certain group; hence, different classes of shares are given different voting rights. For
example, one class of shares would be held by a select group who are given ten votes
per share while a second class would be issued to the majority of investors who are
given one vote per share.

When there is more than one class of stock, the classes are traditionally designated as
Class A and Class B. Berkshire Hathaway (ticker: BRK), the company of Warren Buffett
(one of the greatest investors of all time), has two classes of stock. The different forms
are represented by placing the letter behind the ticker symbol in a form like this: "BRKa,
BRKb" or "BRK.A, BRK.B".

Common stock vs. preferred stock

When you own common stock, you own a share in the company’s profits as well as the
right to vote. Common stock owners may also earn dividends — a payment made to
stock owners on a regular basis — but those dividends are typically variable and not
guaranteed.

The other main type of stock, preferred stock, is frequently compared to bonds. It
typically pays investors a fixed dividend. Preferred shareholders also get preferential
treatment: ​Dividends​ are paid to preferred shareholders before common shareholders,
including in the case of bankruptcy or liquidation.

Preferred stock​ ​prices are less volatile than common stock prices, which means shares
are less prone to losing value, but they’re also less prone to gaining value. In general,
preferred stock is best for investors who prioritize income over long-term growth.

Common stock Preferred stock

Pros ● Potential for higher ● Dividends are typically

long-term return. higher, fixed and
● Voting rights. guaranteed.
● Share price
experiences less
volatility.
 ● Preferred shareholders
are more likely to
recover at least part of
investment in case of
bankruptcy.

Cons ● Dividends, if available, ● Lower long-term

are often lower, growth potential.
variable and not ● No voting rights in
guaranteed. most cases.
● Stock price and
dividend may
experience more
volatility.
● More likely to lose
investment if company
goes bankrupt

Best for Investors looking for long-term Investors looking for income.
growth.

4 other types of stocks

Within those broad categories of common and preferred, stocks are also divided in
other ways. Here are some of the most common:

Company size:​ You might’ve heard the words large-cap or mid-cap before; they refer
to market capitalization, or the value of a company. Companies are generally divided
into three buckets by size: Large cap (market value of $10 billion or more), mid-cap
(market value between $2 billion and $10 billion) and small-cap (market value between
$300 million and $2 billion).

Industry:​ Companies are also divided by industry, often called sector. Stocks in the
same industry — for example, the technology or energy sectors — may move together
in response to market or economic events. That’s why it’s important to diversify by
investing in stocks across sectors. (Just ask someone who held a portfolio of tech
stocks during the dot-com crash.)

Location:​ Stocks are frequently grouped by geographic location. You can diversify your
investment portfolio by investing not only in companies that do business in the U.S., but
also in companies based internationally and in emerging markets, which are areas that
are poised for expansion. (Here’s more on ​how to invest in international stocks​.)

Style: ​You might hear stocks described as growth or value. Growth stocks are from
companies that are either growing quickly or poised to grow quickly. Investors are
typically willing to pay more for these stocks, because they’re expecting bigger returns.

Value stocks are essentially on sale: These are stocks investors have deemed to be
underpriced and undervalued. The assumption is that these stocks will increase in price,
because they’re either currently flying under the radar or suffering from a short-term
event.

Types of stock classes

Companies might also divide their stock into classes, in most cases so that shareholder
voting rights are differentiated. For example, if you own Class A of a certain stock, you
might get more voting rights per share than owners of Class B of the same stock. If a
stock has been segmented into different classes, each class typically has its own ticker
symbol. For example, 21st Century Fox shares are sold under FOXA (A shares) and
FOX (B shares).

● Bonds

Bonds​ are loans, or IOUs, but you serve as the bank. You loan your ​money​ to a
company, a city, the government – and they promise to pay you back in full, with
 regular interest payments. A city may sell ​bonds​ to raise ​money​ to build a
bridge, while the federal government issues ​bonds​ to finance its spiraling debts.

● Bonds are units of corporate debt issued by companies and securitized as

tradeable assets.
● A bond is referred to as a fixed income instrument since bonds traditionally
paid a fixed interest rate (coupon) to debtholders. Variable or floating
interest rates are also now quite common.
● Bond prices are inversely correlated with interest rates: when rates go up,
bond prices fall and vice-versa.
● Bonds have maturity dates at which point the principal amount must be
paid back in full or risk default.

Characteristics of Bonds
Most bonds share some common basic characteristics including:

● Face value​ is the money amount the bond will be worth at maturity; it is
also the reference amount the bond issuer uses when calculating interest
payments. For example, say an investor purchases a bond at a premium
$1,090 and another investor buys the same bond later when it is trading at
a discount for $980. When the bond matures, both investors will receive
the $1,000 face value of the bond.
● The coupon rate​ is the rate of interest the bond issuer will pay on the face
value of the bond, expressed as a percentage. For example, a 5% coupon
rate means that bondholders will receive 5% x $1000 face value = $50
every year.
 ● Coupon dates​ are the dates on which the bond issuer will make interest
payments. Payments can be made in any interval, but the standard is
semiannual payments.
● The maturity date​ is the date on which the bond will mature and the bond
issuer will pay the bondholder the face value of the bond.
● The issue price ​is the price at which the bond issuer originally sells the
bonds.

Categories of Bonds
There are four primary categories of bonds sold in the markets. However, you
may also see ​foreign bonds​ issued by corporations and governments on some
platforms.

● Corporate bonds​ are issued by companies. Companies issue bonds

rather than seek bank loans for debt financing in many cases because
bond markets offer more favorable terms and lower interest rates.
● Municipal bonds​ are issued by states and municipalities. Some municipal
bonds offer tax-free coupon income for investors.
● Government bonds​ such as those issued by the U.S. Treasury. Bonds
issued by the Treasury with a year or less to maturity are called “Bills”;
bonds issued with 1 – 10 years to maturity are called “notes”; and bonds
issued with more than 10 years to maturity are called “bonds”. The entire
category of bonds issued by a government treasury is often collectively
referred to as "treasuries." Government bonds issued by national
governments may be referred to as sovereign debt.
● Agency bonds​ are those issued by government-affiliated organizations
such as Fannie Mae or Freddie Mac.