Stocks, or shares of stock, represent an ownership interest in a corporation. Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.
2. Stocks
Stocks are shares of ownership in a corporation. When you
become a stockholder or shareholder of a company, you
become part-owner of that company. Securities, on the
other hand, are proof of one’s ownership or indebtedness in
a company. Examples of securities are treasury bills and
commercial papers, which are considered as short-term and
are traded in the money market; and stocks and bonds,
which are long-term and traded in the capital market.
Securities are easily bought and sold in the stock market.
3. WHAT ARE THE TYPES
OF SECURITIES THAT I
CAN BUY IN THE STOCK
MARKET?
4. Common stocks
These are usually purchased for participation in the profits and control of
ownership and management of the company. Holders of common stocks
have voting rights. They are also entitled to an equal pro rata division of
profits without preference or advantage over another stockholder. However,
they have the last claim on dividends and are the last to collect in case of
corporate liquidation.
5. Preferred stock
Its name is derived from preference given to the holders of these stocks
over holders of common stocks. Holders of preferred stocks are entitled to
receive dividends, to the extent agreed upon, before any dividends are paid
to the holders of common stocks. However, preferred stocks usually have a
specified limited rate of return or dividend and a specified limited
redemption and liquidation price.
6. Warrant
A corporation can also raise additional capital by issuing warrants. A
warrant, normally issued on a detachable basis, allows its holders the right,
but not the obligation, to subscribe to new shares at a set price during a
specified period of time. It is usually provided free of charge and traded
separately in the securities market.
7. Philippine deposit receipts
A PDR is a security which grants the holder the right to the delivery or sale of the
underlying share, and to certain other rights including additional PDR or
adjustments to the terms or upon the occurrence of certain events in respect of
rights issues, capital reorganizations, offers and analogous events or the distribution
of cash in the event of a cash dividend on the shares. PDRs are evidences or
statements nor certificates of ownership of a foreign/foreign-based corporation. For
as long as the PDRs arenot exercised, the shares underlying the PDRs are and will
continue to be registered in the name of and owned by and all rights pertaining to
the shares shall be exercised by the issuer.
9. What is a 'Bond’
A bond is a debt investment in which an investor
loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined
period of time at a variable or fixed interest rate. Bonds
are used by companies, municipalities, states and
sovereign governments to raise money and finance a
variety of projects and activities. Owners of bonds are
debtholders, or creditors, of the issuer.
10. Example
Because fixed-rate coupon bonds will pay the same percentage of its face value over
time, the market price of the bond will fluctuate as that coupon becomes desirable or
undesirable given prevailing interest rates at a given moment in time. For example if a
bond is issued when prevailing interest rates are 5% at $1,000 par value with a 5%
annual coupon, it will generate $50 of cash flows per year to the bondholder. The
bondholder would be indifferent to purchasing the bond or saving the same money at the
prevailing interest rate.
If interest rates drop to 4%, the bond will continue paying out at 5%, making it a more
attractive option. Investors will purchase these bonds, bidding the price up to a premium
until the effective rate on the bond equals 4%. On the other hand, if interest rates rise to
6%, the 5% coupon is no longer attractive and the bond price will decrease, selling at a
discount until it's effective rate is 6%.
Because of this mechanism, bond prices move inversely with interest rates.
11. Consumer Loan
An amount of money lent to an individual (usually
on a nonsecured basis) for personal, family, or household
purposes. Consumer loans are monitored by government
regulatory agencies for their compliance with consumer
protection regulations such as the Truth in Lending Act.
Also called consumer credit or consumer lending.
12. Amortization is an accounting term that refers to
the process of allocating the cost of an intangible asset
over a period of time. It also refers to the repayment of
loan principal over time
13. What is a 'Mortgage'
A mortgage is a debt instrument, secured by the collateral
of specified real estate property, that the borrower is
obliged to pay back with a predetermined set of payments.
Mortgages are used by individuals and businesses to make
large real estate purchases without paying the entire value
of the purchase up front. Over a period of many years, the
borrower repays the loan, plus interest, until he/she
eventually owns the property free and clear. Mortgages
are also known as "liens against property" or "claims on
property." If the borrower stops paying the mortgage, the
bank can foreclose.