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Stocks vs Bonds: Key Differences

The document discusses the key characteristics and differences between stocks and bonds as financial instruments. Stocks provide ownership in a company but dividends are not guaranteed, while bonds guarantee repayment of principal at maturity but do not provide ownership. The questions ask about which type of instrument is a bond or stock example, when interest versus dividends must be paid, tax implications, and who has more influence over management between stockholders and bondholders.

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104. Seng karuna
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79 views1 page

Stocks vs Bonds: Key Differences

The document discusses the key characteristics and differences between stocks and bonds as financial instruments. Stocks provide ownership in a company but dividends are not guaranteed, while bonds guarantee repayment of principal at maturity but do not provide ownership. The questions ask about which type of instrument is a bond or stock example, when interest versus dividends must be paid, tax implications, and who has more influence over management between stockholders and bondholders.

Uploaded by

104. Seng karuna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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HOMEWORK

Name:

INFORMATION TRANSFER
CHARACTERISTICS OF STOCKS AND BONDS
Figure 1 (Textbook Page 103-104)

A. Scan Figure 1 to answer these questions.


1. Which type of financial instrument is a bond? __Interest must be paid before any
dividends, Principal must be repaid at stated maturity date, bondholders no voice
in management and interest as an expense of doing business is tax
deductible.______________
2. What example is given for equity financing? ___Dividends can be issued only
after interest, no principal or maturity date,voting stockholders can management
by electing members of the board of directors and not tax
deductible_____________
3. What must be paid first - interest payments of dividends?
_____Bonds___________
For whom is this a disadvantage? ______Stockholders__________
4. Are stockholders guaranteed dividend payments? _________No, it is not_______
Who decides when dividends will be paid? ____Board of director____________
5. Are bondholders guaranteed interest payments? _______No, it is not_________
When must the principle be repaid? ______Repaid at stated maturity date ___
6. Who has more influence on managerial decision-making-stockholders or
bondholders? ____ stockholders____________
6. Does a corporation pay taxes on interest? ________No, it is not________
Does a corporation pay taxes on dividends? _____No, it is __________
B. Refer to Figure 1 to answer these questions.

1. What advantages do stocks have over bonds?


… Dividends can be issued only after interest, no principal or maturity date,voting
stockholders can management by electing members of the board of directors and not tax
………………………………………………………………………………………………………
………………………………………………………………………………………………………
What advantages do bonds have over stocks?
………… Interest must be paid before any dividends, Principal must be repaid at stated
maturity date, bondholders no voice in management and interest as an expense of doing
business is tax deductible………………………………………………………………………..
……………………………………………………………………………………………………...
2. If you had $10,000 to invest in a corporation, would you purchase stocks, bonds, or both
why?
…………I would invest stocks because it has no principal or maturity date,voting
stockholders can management by electing members of the board of directors and not tax
deductible ………………………………………………………………………………………...
3. As the financial manager of a well-established, successful corporation, how would you
advise company to raise capital?
…I would advise as keep selling stocks and bound and try to extend the branches over
the country or world……

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