Stocks and Bonds

Q: What is Common Stock?
A: Common Stock is a security representing a unit of ownership in a company. It gives the stockholder (shareholder) the right to vote at the company’s General Meetings and a proportionate claim on any dividends declared, after preference shareholders. As owners of the company, common shareholders assume the primary risk if business is poor, realize greater returns in the event of success and elect the Board of Directors that controls the company. Ordinary shareholders have a residual right to assets in the event of dissolution and a pre-emptive right to maintain their proportional ownership in a company. 
   
Q: What is Preferred Stock?
A: Preferred Stock is a security representing an ownership interest in a company. Preferred stockholders enjoy priority over the common stockholders with respect to the payment of dividends and the distribution of assets in the event of dissolution of the company. The dividends paid to preference shareholders are fixed and may be cumulative. Preferred stockholders generally do not have a right to vote at the company’s General Meetings.
   
Q: What is a Bond?
A: Bonds are debt instruments issued by a government or a company which represent a fixed sum of money that was borrowed (principal).  The issuer (borrower) promises to pay the holder (lender), a specified amount of interest (usually stated as a percentage) over a specified period of time, and to repay the principal at maturity.
   
Q: What is the difference between Stocks and Bonds?
A:

(1) Stocks represent ownership in a company while bonds represent a debt or loan to the company. A bondholder is a creditor who has a claim against the company in the event of dissolution of the company ahead of all classes of shareholders, equal to the value of the bond.

 

(2) As a part owner of a company a shareholder may receive periodic dividend payments from the company depending on its performance. A bond holder is entitled to receive periodic interest payments at an interest rate that is declared at the time the bond is issued.