Corporate Bonds, Common stock, and Preferred Stock
Higher return means higher risk. People use excess money to invest in a corporation. It is a good way gain more money than put money into the saving account to get a little interest. Before you invest you should analyze the characteristics of corporate bonds, common stock, and preferred stock; and also be aware of their advantages and disadvantages. The corporate bonds are issued by corporations. They are used to increase capital for issuing companies. They are usually riskier than treasuries. However, one must always think over who has issued the specific bond and what its rating is. In addition, the interest on corporate bonds is subject to federal, state, and local taxes. Corporate bonds characteristics depend on the specific issuing organizations or institution. For example, secured bonds are asset –backed bonds; they are issued using specific properties or assets as collateral. When the famous company has a default in its firm, the secured bond becomes an unsecured bond (unsecured bond are also known as debenture bonds). They are backed only by the general credit worthless of the issuer. Such as the bonds issued by Freddie Mac or Fannie Mae. “A mortgage bond where the bond is back by a pool of mortgages.” (Hashemian) On the other hand, the company bond is not guaranteed to make profit. It depends on the company’s performance. The other characteristic is the face value or par value. It is the amount of money a bond holder will bet back once a bond matures. Normally, corporate bonds have a par value of $1000. The bondholder receives a coupon. This is the amount of the interest payment. The bondholder can receive interest payment monthly, quarterly or annually depending on the company. Corporate bond is a fixed rate bond or a floating- rate bond (an adjustable interest payment). It usually offers a higher yield in order to entice investors. (Investopedia) “Common stock is the basic form of...
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