The Securities Markets
Fundamentals of Business
Chapter 9
Topics covered
Introduction
Stock Basics
Bond Basics
Introduction
In order to raise long – term funds, as discussed earlier, a corporation can issue stock for equity financing or bonds for debt financing.
As stocks represents ownership and bonds represent debt, they both represent a secured (asset based) claim on the part of investors and are known as securities.
The market for dealings of stocks and bonds is collectively called the securities market.
Introduction
Definition: An instrument representing ownership (stocks), a debt agreement (bonds)
Bonds are debt, whereas stocks are equity. This is the important distinction between the two securities. By purchasing equity (stock) an investor es an owner in a corporation. es with voting rights and the right to share in any future profits. By purchasing debt (bonds) an investor es a creditor to the corporation (or government). The primary advantage of being a creditor is that you have a higher claim on assets than shareholders do: that is, in the case of bankruptcy, a bondholder will get paid before a shareholder. However, the bondholder does not share in the profits if pany does well - he or she is entitled only to the principal plus interest. To sum up, there is generally less risk in owning bonds than in owning stocks, but es at the cost of a lower return.
Introduction
Securities markets can be divided into primary and secondary markets.
When a new stock or bond is issued, it is handled by primary market.
To bring the new issue to the market, the issuing corporation needs the service of an investment banker which underwrites (purchases) the new issue and distributes it through groups of other bankers and brokers into the hands of individual investors.
Stock Basics
Stock means ownership. As an owner, you have a claim on the assets and earnings of pany as well as voting rights with your shares.
Stock is equity, bonds are debt. Bondholders are guar
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