Although stocks and bonds may both be viewed as investment opportunities, there are major differences between the two. Stock represents capital, the financial investment or equity, in a corporation. In a publicly-traded corporation, individuals and groups buy and own shares of stock in the company. Shares of stock are traded (bought and sold) on one of the stock exchanges. For example, you might buy shares of stock in Coca-Cola, a publicly-traded company. Publicly traded companies are very different from privately-owned companies. Private corporations do not sell stock on a public exchange. For example, ECPI is a privately-owned company. Its stock is not available to outside investors, nor is it traded on an exchange.
Bonds are debt issued by a government or corporation. Individuals and groups buy and hold these bonds as an investment. The government or corporation that issues these bonds guarantees payment of the original investment plus interest earned at a specific future date. For example, if New York City wants to build a new tunnel and bridge, the city might issue a bond to finance this project.
Both stocks and bonds are used to raise money. Issuing bonds allows the corporation to maintain control since ownership is not changed. Issuing stock gives up control to the stockholders (Wild, Shaw, & Chiappetta, 2014).
Before you begin, please complete your reading assignment and view the presentations for the week.
Discussion Topic
Imagine that you work for The XYZ Inc., a business that is a publicly-owned corporation. Plans have been designed for a major business expansion that would take place over the next several years. You know your company will need to raise money to finance this project.
Discuss the following information in your initial post regarding The XYZ Inc. and its intention to raise money to finance this project.
In your original post, answer the following:
- Discuss the project you have planned.
- Are there any advantages to issuing bonds over stocks? Identify one advantage and explain why it is an advantage.
- Are there any advantages to selling stocks instead of issuing bonds? Identify one advantage, and explain why it is an advantage.
- If you owned this corporation, would you want to sell your company stock or issue a bond? Explain your decision.
- Now, imagine you sell the stock. Would you issue common stock or preferred stock? Why?
- As an investor who wishes to make as much profit as possible in the long term, would you want to buy stocks or bonds? Explain your answer.
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