Stocks-and-Bonds.docx

StocksandBondsSomepeoplearccontenttolimit(heirinvestmentprogramstosuchsafeinvcsnwn<sassavingsaccountsandsavingsbonds.Theytakecomfortinknowing(hatwhile<hereturnfromsuchinvesimencsmaybesmall,itisSleadyandsure.OtherpeopleseekinvestmentsIhalinvolvehigherrisks.TheyunderstandthattheamxntofmoneyaninveMnenlreturnsisfrequentlyrelatedIotheamountofriskitinvolves.Becausetheywanttoobtainthegreatestpossiblereturnoneachdollarinvested,theyarcwillingtotakecertainchances.StillanothergroupCfpeoplewantb<xhthecomtbrtofsafeinvestmentsandthegreaterdollarreturnofhigh-riskinvestne11s.Accordingly,(heypreferaprogramthathasabalanceofbothsafeandhigh-riskinves(ne11s.Forthelasttwogroups,themostpopulartypesofhigh-riskinvestmentsareth>sethatinvolvesecurities.Securities,whichisageneraltc11nforstocksandbonds,arcsoldbygovernmentsandcorporationsinordertoraiselargeamountsofmoney.TherearcthreewaysinWhiChbusinessesthatneedagreatdealofmoneyforalongperiodoftimecanobtainthatmoney.Theycango(oabankandapplyforalong-termloan.Theycanusethexofisof(hebusiness.ButbanksareoftenreluctantolendlargeamountsforperiodslongerthanOnCOrtwoyean>.AndprofitsarcordinarilynollareenoughlGnancenylhingveryexpensive.IhcrcforcwheneverbusinessesorgovernmentsneedfinancingformajorprojectsOrforgrowththeymustraisethemoneythroughthesaleofsecurities.BondsAbondislikeapromissorynote.CXCCp<thatitisissuedeitherbyabusinessorbygovemnenlunitsuchasacity,cnly.orstate.Whcyyoubuyabond,youarcreallylendingmoneytothegovernmentOrbusinessfromwhichyoubuyit.Inreturn,youreceivefromthesellerawrittenpromisecopayyouadefinitesumofmoney,plusinterest,atafuturedate.ThereareIWotypesofbonds.Governmentbondsareissuedbystateandlocalgovernn>e11s(ohelpPayforimprovementssuchasStrcclS.schools,andpublicbuildings.CorporatebondsareissuedbybusinessesIoraisemoneyforexpansionandgrowth.ThCdenominationisthesumofmoneythatthebondrepresents.Thissumisprintedonthebond.hcinterestrateissetatthetimeabondisissued.Itremainsthesameuntilthebondmatures.Thematuritydateofabondisalsofixed.Bondsmaybeissuedforsuchperiodsas10,20.or30years.SupposeyouboughtaS1.0(K)bondal6percentinterestfor20years.Eachyearyouwouldreceive$60ininlereM(6percentofS1.(XM).Ihcinterestwouldprobablybepaidtoyouintwopayments.$3()everysixmonths.After20years,thebondwouldmature,andyouwouldreceive$I,(XM>-(hepriceyoupaidwhenyoufirstboughtthehood.BondsmaybeeitherregisteredOfbearerbonds.AregisteredbondisabondIhalhasthenaneof(beownerrecordedwiththeissueroflhebond.Interestismaileddirecllyl(hepersonregisteredastheowner.Abearerbondis<bondwhoseownerispresumedtobethepersonwhohaspossessionofthebond.Bearerbondsarcnotregistered.Wheninterestpaymentsarcdueonabearerbond,itspossessorclipsacouponfromlhebondarxisends(heC(MlPOntolheissuerforpayment.Bondsan?alsoclassifiedaccording(o(hetypeofsecurity(hatbacksthemup.Amortgagebondisbackedby(heissuer'spledgeofbuildings,landandequiprncnlas火Curhy.Adebenturebondisbackedonlybytheissuer'spromiselopaywhen(heinlerestandprincipalarcdue.1. ACCordingto(he(ex(.whichisconsideredthesafestprogramofinvestment?Saving2. Theessentia)differencebetweenaregisteredbondandabearerbondliesinIhal.3. Intermsofsafeness,amortgagebondis-saicrthanadebenturebond.4. WhichcanNOTbeafeatureofabond,?5. Wecaninferfromthepassagethatthesafestformofbond,inheory,is-governn>eHbondwithmongage_.StocksAsabondholderyouarcacreditorof,orlenderto,abusinessfirmorgovernnnunit.Asastockholder,however,youarconeof(heownersofacorporation.StockrepresentsaShanJofownershipinacorporation.Astockholdernayownoneshareormanysharesofacorporation*sslock,andeachshare11uycostseveraldollars>rseveralhundreddollars.Uponpurchaseofastock,astockholderreceivesastockcertificate,aprintedtb11nthatstatesthenumberofsharesapersonownsinacorporation.Ybucanbuyeithercommonorpreferredstock.Comnonstockisstock(hatpennitsownersovo<efordirectorsa(heannualmeetingoftheCOrPOraUonandtoshareanyprofitsorlosses.Ho)den>ofcommonstockshareindirectlyinthemanagementofthecorporationbyvolingforthedirccu>n;.whoinIumappointsthepeoplewhomanagethecorporation.AlthoughthereisgreaterriskinowningcommonStOCkthaninowningpreferredstockorbonds、thereisalsothechanceofagreaterreturnonyourinvestment.Dividendsforcommonstockarcsetbythedirectorsof(hecorporationaccordingloIheamountofx>fit.Ifprofitsarehigh,dividendsofCommOnstockcanbemuchhigherthanforpreferredslock.Ifprofitsarelow.dividendsmanynotpaidIoholdersofcommonsslock.Forthisreason(heprice>fsharesofcommonstockchangesmorerapidlythanthepriceofpreferredstock.PreferredMockisstockwithfirstclaimonthecorporalion,searningsandassetsaftertheclaimsOfbondbokiCrs.PrCfCrrCdstockholdersdonothavevotingrightsinthecorporation.Prefen,e<lstockdividendsareusuallysetWhelIlhestockisfirstsoldandNmain(hesamethereafter.Thismeansthatifthedividendisseiat$6pershare,preferredstockholderswillusuallyreceivethissanamounteachyear.PreferredstockdividendsmustbepaidbeforeCommonStoCkdividendscanbepaid.Sincethedividendremainsthesamefromyeartoyear,preferredstockisusuallymorestablein