Chapter 1: 1B (page 49)
What are the key differences between common stock, preferred stock, and corporate bonds?
Short Answer
Expert verified
Common stocks are shares in ownership.
Preferred stocks give a fixed income without voting rights.
Corporate bonds are used to raise funds from the public.
Step by step solution
01
Definition
Common stocks are a kind of equity security that represents shares in ownership. Preferred stocks are similar to an infinite maturity bond that gives a fixed income without voting rights. Corporate bonds are means through which companies raise funds from the public
02
Differences
Difference between common stock, preferred stock and corporate bonds:
Common stock | Preferred stock | Corporate bonds |
1. It represents a share of ownership in the publically held company. | 1. It represents a share of ownership in the publically held company. | 1. It represents long term debt by corporations directly raised from the public.. |
2. It grants voting rights in the governance of the company. | 2. It doesn’t grant voting rights in the governance of the company. | 2. It doesn’t grant voting rights in the governance of the company. |
3. It may offer dividends. | 3. It pays a fixed sum of money as a dividend. | 3. It returns semi-annual coupons. |
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