Professional Documents
Culture Documents
Chapter note
Prepared by SM Nahidul Islam
Dept. of Finance & Banking
Islamic University, Kushtia.
Points of
distinction
1. Meaning
2. Kinds of
instrument
3. Owners
4. Issued By
5. Participants
6. Derivatives
7. Yield Analysis
8. Claim on
income &
asset
Common stock
Bond
Shareholders
corporation or joint-stock
companies
Market maker, Floor trader,
Floor broker.
Credit derivative, Hybrid
security, Options, Futures,
Forwards, Swaps
Gordon model, Dividend
yield, Income per share,
Book value, Earnings yield,
Beta coefficient
Have residual claim. Thus all
the risk is borne by equity
shareholders.
Bondholder
Public sector authorities, credit
and supranational institutions.
Investors, Speculators,
Institutional Investors.
Bond option, Credit derivative,
Credit default swap,
Collateralized debt obligation.
Nominal yield, Current yield,
Yield to maturity, Yield curve,
Bond duration, Bond convexity.
Have first claim on income and
asset.
Bond
Bonds have a lower rate of interest
and they are more secure.
Bondholders are paid first in a
bankruptcy
The company provides collateral for
the loan
Debenture
Debentures have a higher rate of
interest because they are basically
unsecured loans
Debenture holders do not have this
security.
The company does not provide
collateral for the loan
Answer: The main differences between share and stock are given below:
Share
A share is one of a number of individual
units into which the capital of a company
is divided.
Shares may be partly or fully paid-up.
Shares cannot be transferred in fractional
amount
A share has a nominal value.
Stock
Stock is the capital in the form of a
fund which may be divided into any
desired amount.
stock must be fully paid
Stock can be transferred in any
fraction.
Stock has none.
Points of
distinction
s
1. Control
2. Holder
3. Ownershi
p
4. Decision
making
process
Equity shares
Preferences
shares
Bond / Debenture
Cannot participate.
5. Maturity
6. Claim on
income
7. Claim on
asset
Have preference
over equity shares.
9. Explain the linkage among financial decisions, return, risk and stock value
A decision or action by the financial manager can have an effect on the risk and expected return of the
stock, both of which are part of the stock valuation model.