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).
Scenario
Imagine 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.
Instructions
Create a two- (2-) page report, not including the reference and cover page, in which you reference the following points about The XYZ Inc. and the project to raise money.
- 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 stock company 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.
Be sure to support your responses with credible sources. Use APA style to cite your sources and format your paper. You are not required to write an abstract.
Create your assignment in a Microsoft Word document. Name and save your file using the following file naming convention: YourFirst_LastName_U3_inclass_activity.
Reference
Wild, J.J., Shaw, K.W., & Chiappetta, B. (2014). Principles of financial accounting (22nd ed.). New York, NY: McGraw Hill Irwin.
