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STOCKS AND
BONDS
Seminarski rad
Engleski

Mentor :
Dr. Maja Stanojevi Goci

Student :
Miodrag Popovi 276/PE

Introduction..........................................................................................................................3
Stocks (History)...................................................................................................................5
Stocks (Stockholder)............................................................................................................6

Stocks (Trading)...................................................................................................................7
Bond (Issuance)...................................................................................................................8
Bond (Valuation)..................................................................................................................9
Types (Stocks and Bonds)..................................................................................................10
Literature:...........................................................................................................................12

Introduction

The stock of a corporation constitutes the equity stake of its owners. It represents
the residual assets of the company that would be due to stockholders after discharge of all
senior claims such as secured and unsecured debt. Stockholders' equity cannot be
withdrawn from the company in a way that is intended to be detrimental to the company's
creditors. The stock of a corporation is partitioned into shares, the total of which are
stated at the time of business formation. Additional shares may subsequently be
authorized by the existing shareholders and issued by the company. In some jurisdictions,
each share of stock has a certain declared par value, which is a nominal accounting value
used to represent the equity on the balance sheet of the corporation. In other jurisdictions,
however, shares of stock may be issued without associated par value. Shares represent a
fraction of ownership in a business. A business may declare different types (classes) of
shares, each having distinctive ownership rules, privileges, or share values. Ownership of
shares may be documented by issuance of a stock certificate. A stock certificate is a legal
document that specifies the amount of shares owned by the shareholder, and other
specifics of the shares, such as the par value, if any, or the class of the shares. In
the United Kingdom, Republic of Ireland, South Africa, and Australia, stock can also
refer to completely different financial instruments such as government bonds or, less
commonly, to all kinds of marketable securities.
As for the bond in finance, a bond is an instrument of indebtedness of the bond
issuer to the holders. It is a debt security, under which the issuer owes the holders a debt
and, depending on the terms of the bond, is obliged to pay them interest and to repay the
principal at a later date, termed the maturity date. Interest is usually payable at fixed
intervals (semiannual, annual, sometimes monthly).
Bonds and stocks are both securities, but the major difference between the two is
that (capital) stockholders have an equity stake in the company (i.e. they are investors),
whereas bondholders have a creditor stake in the company (i.e. they are lenders).

3.
Being a creditor, bondholders have absolute priority and will be repaid before
stockholders (who are owners) in the event of bankruptcy. Another difference is that
bonds usually have a defined term, or maturity, after which the bond is redeemed, where
as stocks are typically outstanding indefinitely. An exception is an irredeemable bond,
such as Consols, which is a perpetuity, i.e. a bond with no maturity.

4.

Stocks (History)
During the Roman Republic, the state contracted (leased) out many of its services
to private companies. These government contractors were called publicani, orsocietas
publicanorum as individual company. These companies were similar to modern
corporations, or joint-stock companies more specifically, in couple of aspects. They
issued shares called partes (for large cooperatives) and particulaewhich were small shares

that acted like today's over-the-counter shares. Polybius mentions that almost every
citizen participated in the government leases. There is also an evidence that the price of
stocks fluctuated. The great Roman orator Cicero speaks of partes illo tempore
carissimae, which means share that had a very high price at that time." This implies a
fluctuation of price and stock market behavior in Rome.
Around 1250 in France at Toulouse, 96 shares of the Socit des Moulins du
Bazacle, or Bazacle Milling Company were traded at a value that depended on the
profitability of the mills the society owned. As early as 1288, the Swedish mining and
forestry products company Stora has documented a stock transfer, in which that the
Bishop of Vsters acquired a 12.5% interest in the mine (or more specifically, the
mountain in which the copper resource was available, Great Copper Mountain) in
exchange for an estate.
Soon afterwards, in 1602, the Dutch East India Company issued the first shares that were
made tradeable on the Amsterdam Stock Exchange, an invention that enhanced the ability
of joint-stock companies to attract capital from investors as they now easily could dispose
of their shares. The Dutch East India Company became the first multinational corporation
and the first megacorporation. Between 1602 and 1796 it had traded 2.5 million tons of
cargo with Asia on 4,785 ships and had sent a million Europeans to work in Asia,
surpassing all other rivals.
The innovation of joint ownership made a great deal of Europe's economic
growthpossible following the Middle Ages. The technique of pooling capital to finance
the building of ships, for example, made the Netherlands a maritime superpower. Before
adoption of the joint-stock corporation, an expensive venture such as the building of a
merchant ship could be undertaken only by governments or by very wealthy individuals
or families.
Economic historians find the Dutch stock market of the 17th century particularly
interesting: there is clear documentation of the use of stock futures, stock options, short
selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695,
and a change in fashion that unfolded and reverted in time with the market (in this case it
was headdresses instead of hemlines).
5.

Stocks (Stockholder)
A stockholder is an individual or company (including acorporation) that legally
owns one or more shares of stock in a joint stock company. Both private and public

traded companies have shareholders. Companies listed at the stock market are expected to
strive to enhance shareholder value.
Shareholders are granted special privileges depending on the class of stock,
including the right to vote on matters such as elections to the board of directors, the right
to share in distributions of the company's income, the right to purchase new shares issued
by the company, and the right to a company's assets during aliquidation of the company.
However, shareholder's rights to a company's assets are subordinate to the rights of the
company's creditors.
Shareholders are considered by some to be a partial subset of stakeholders, which
may include anyone who has a direct or indirect equity interest in the business entity or
someone with even a non-pecuniary interest in a non-profit organization. Thus it might be
common to call volunteer contributors to an association stakeholders, even though they
are not shareholders.
The largest shareholders (in terms of percentages of companies owned) are often
mutual funds, and, especially, passively managed exchange-traded funds.

6.

Stocks (Trading)
In general, the shares of a company may be transferred from shareholders to other
parties by sale or other mechanisms, unless prohibited. Most jurisdictions have

established laws and regulations governing such transfers, particularly if the issuer is a
publicly traded entity.
The desire of stockholders to trade their shares has led to the establishment
of stock exchanges, organizations which provide marketplaces for trading shares and
other derivatives and financial products. Today, stock traders are usually represented by
a stockbroker who buys and sells shares of a wide range of companies on such
exchanges.
There are various methods of buying and financing stocks, the most common
being through a stockbroker. Brokerage firms, whether they are a full-service
or discount broker, arrange the transfer of stock from a seller to a buyer. Most trades are
actually done through brokers listed with a stock exchange.
Selling stock is procedurally similar to buying stock. Generally, the investor wants
to buy low and sell high, if not in that order (short selling); although a number of reasons
may induce an investor to sell at a loss, e.g., to avoid further loss.

7.

Bond (Issuance)
Bonds are issued by public authorities, credit institutions, companies
and supranational institutions in the primary markets. The most common process for

issuing bonds is through underwriting. When a bond issue is underwritten, one or more
securities firms or banks, forming a syndicate, buy the entire issue of bonds from the
issuer and re-sell them to investors. The security firm takes the risk of being unable to sell
on the issue to end investors. Primary issuance is arranged bybookrunners who arrange
the bond issue, have direct contact with investors and act as advisers to the bond issuer in
terms of timing and price of the bond issue. The bookrunner is listed first among all
underwriters participating in the issuance in the tombstone ads commonly used to
announce bonds to the public. The bookrunners' willingness to underwrite must be
discussed prior to any decision on the terms of the bond issue as there may be limited
demand for the bonds.
In contrast, government bonds are usually issued in an auction. In some cases both
members of the public and banks may bid for bonds. In other cases only market makers
may bid for bonds.
Historically an alternative practice of issuance was for the borrowing government
authority to issue bonds over a period of time, usually at a fixed price, with volumes sold
on a particular day dependent on market conditions. This was called a tap issue or bond
tap.

8.

Bond (Valuation)

At the time of issue of the bond, the interest rate and other conditions of the bond
will have been influenced by a variety of factors, such as current market interest rates, the
length of the term and the creditworthiness of the issuer.
These factors are likely to change over time, so the market price of a bond will
vary after it is issued. The market price is expressed as a percentage of nominal value.
The market price of a bond is the present value of all expected future interest and
principal payments of the bond discounted at the bond's yield to maturity, or rate of
return. That relationship is the definition of the redemption yield on the bond, which is
likely to be close to the current market interest rate for other bonds with similar
characteristics. (Otherwise there would be arbitrage opportunities.) The yield and price of
a bond are inversely related so that when market interest rates rise, bond prices fall and
vice versa.
Bond markets, unlike stock or share markets, sometimes do not have a centralized
exchange or trading system. Rather, in most developed bond markets such as the U.S.,
Japan and western Europe, bonds trade in decentralized, dealer-basedover-thecounter markets. In such a market, market liquidity is provided by dealers and other
market participants committing risk capital to trading activity.
Bond markets can also differ from stock markets in that, in some markets,
investors sometimes do not pay brokerage commissions to dealers with whom they buy or
sell bonds. Rather, the dealers earn revenue by means of the spread, or difference,
between the price at which the dealer buys a bond from one investorthe bid price
and the price at which he or she sells the same bond to another investorthe ask or
offer price. The bid/offer spread represents the totaltransaction cost associated with
transferring a bond from one investor to another.

9.

Types (Stocks and Bonds)

 Common stock
Preffered stock
o
o
o
o
o
o
o
o
o
o
o
o
o
o

Fixed rate bonds

Floating rate notes
Zero-coupon bonds
High-yield bonds
Convertible bonds
Exchangeable bonds
Subordinated bonds
Covered bonds
Bearer bond
A government bond
Municipial bond
Lottery bond
War bond
Social impact bonds

10.
As a unit of ownership, common stock typically carries voting rights that can be
exercised in corporate decisions. Preferred stock differs from common stock in that it

typically does not carry voting rights but is legally entitled to receive a certain level
of dividend payments before any dividends can be issued to other shareholders.
Fixed rate bonds have a coupon that remains constant throughout the life of the
bond. A variation are stepped-coupon bonds, whose coupon increases during the life of
the bond.
Floating rate bonds (FRNs, floaters) have a variable coupon that is linked to
a reference rate of interest, such as LIBOR or Euribor.
Zero-coupon bonds pay no regular interest. They are issued at a substantial
discount to par value, so that the interest is effectively rolled up to maturity (and usually
taxed as such).
High-yield bonds are bonds that are rated below investment grade by the credit
rating agencies. As these bonds are more risky than investment grade bonds, investors
expect to earn a higher yield.
Convertible bonds let a bondholder exchange a bond to a number of shares of
the issuer's common stock. These are known as hybrid securities, because they
combine equity and debt features.
Exchangeable bonds allows for exchange to shares of a corporation other than
the issuer.
Subordinated bonds are those that have a lower priority than other bonds of the
issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors.
Covered bonds are backed by cash flows from mortgages or public sector assets.
Contrary to asset-backed securities the assets for such bonds remain on the issuers
balance sheet.
Bearer bond is an official certificate issued without a named holder. In other
words, the person who has the paper certificate can claim the value of the bond. Often
they are registered by a number to prevent counterfeiting, but may be traded like cash.
A government bond also called Treasury bond, is issued by a national
government and is not exposed to default risk. It is characterized as the safest bond, with
the lowest interest rate. A treasury bond is backed by the full faith and credit of the
relevant government.
Municipial bond is a bond issued by a state, U.S. Territory, city, local
government, or their agencies. Interest income received by holders of municipal bonds is
often exempt from the federal income tax and from the income tax of the state in which
they are issued, although municipal bonds issued for certain purposes may not be tax
exempt.
Lottery are issued by European and other states. Interest is paid as on a traditional
fixed rate bond, but the issuer will redeem randomly selected individual bonds within the
issue according to a schedule. Some of these redemptions will be for a higher value than
the face value of the bond.
War bond is a bond issued by a country to fund a war.
Social impact bond are an agreement for public sector entities to pay back private
investors after meeting verified improved social outcome goals that result in public sector savings
from innovative social program pilot projects.
11.

Literature:

https://www.scribd.com/doc/177574365/Bonds
http://en.wikipedia.org/wiki/Bond_(finance)
http://en.wikipedia.org/wiki/Stock

12.