Discussing Long-Term Financing Stocks and Bonds
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What are the key differences between stocks and bonds with respect to ownership rights, claims on income and assets, maturity, risks, and tax treatment? Why might an organization choose one versus the other as a long-term financing instrument?
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This solution discusses the difference between stocks and bonds.
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Stocks vs. Bonds:
Stock: The type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
There are two main types of stock: common and preferred. Common stocks usually entitle the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stocks receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.
Also known as "shares" or ...
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