When we do not know basic economic terms, it is very easy to confuse the terms bonds and stocks. To differentiate them it is necessary to know the concepts. The main Difference between bonds and stocks is that bonds have maturity dates while stocks do not have maturity dates.
Bonds
They are debt financial instruments. They are used by financial entities and by governments. It is the material form of fixed or variable income debt securities. The bonds are issued by public and private institutions. They can be issued by supranational institutions in order to obtain funds from the financial markets.
These are titles issued in the name of the bearer. They are usually traded in a market or on the stock exchange. Whoever issues the bond agrees to return the borrowed capital together with interest.
Types of bonds
- Redeemable voucher: Vouchers can be exchanged for shares.
- Convertible Bond: Grants its holder the option to exchange it for newly issued shares at a fixed price.
- Zero-coupon bond: It is a bond that does not pay interest throughout its useful life, however, when it is amortized, the accumulated interest is paid.
- Cash bond: These are bonds issued by a company that undertakes to reimburse the value of the bond upon arrival of the fixed payment date.
- Strips: These are bonds whose value is divided at the time of payment. Interest and principal payment can be paid separately, their values being traded separately.
Perpetual debt bond: These are those bonds where the interest generated is paid indefinitely but not the principal payment.
- Bond risks:
- Market risk.
- Credit risk.
- Inflation risk.
Actions
It is a title issued by a company, it represents the value of one of the equal fractions into which its capital is divided.
The shares offer their holder political and economic rights. The shares are transferable without restrictions and their benefits can be variable since they depend on how well the company or company is doing.
There are different types of actions depending on the benefits and restrictions.
Differences between bonds and stocks
- Both are financial assets.
- The bond represents a debt voucher, it is issued by an entity when it requires a loan. The entity that issues the bond agrees to pay the debt plus the interest generated depending on the type of bond.
- The shares represent a part of the capital stock of an entity.
