What are the advantages and disadvantages of using bonds as opposed to stocks in order to raise money?
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What are the advantages and disadvantages of using bonds as opposed to stocks in order to raise money?
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"...This is the important distinction between the two securities. By purchasing equity i.e. stock an investor becomes an owner in a corporation."
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Introduction:
Just like people need money, so do companies and governments. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds to a public market. Thousands of investors then each lend a portion of the capital needed. Really, a bond is nothing more than a loan. The issuer of a bond must pay the investor something extra for the privilege of using his or her money. The extra comes in the form of interest payments. Bonds are known as fixed income Securities and one can know the exact amount of cash that they will get back as long as they hold the security until maturity.
Stocks are equity. bonds are debt. This is the important distinction between the two securities. By purchasing equity i.e. stock an investor becomes an owner in a corporation. Owner ship comes with voting right and right to share in any future profits. By purchasing bonds (debt), an investor becomes a creditor to the corporation or government whom so ever issues the bond.
Advantages
1. A bond is a long-term debt instrument with a final maturity generally ...
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