BONDS AND EQUITY

SECURITIES
Chapter 7
Objectives

 To identify the difference between stocks and bonds

 To discuss the different types of stocks and bonds
 Todiscuss how investors gain income from stocks and
bonds
What is a bond?

A bond is considered loan in the form of

fixed income security by the investor to a
firm.
Features of bonds

Redemption Provisions
Bonds are paid before the maturity period
Conversion Provisions
 bondholders may have the right to convert
the bonds to stocks under specific terms
Features of bonds

 Sinking fund provisions

 firms sets aside some of their earnings to reduce
indebtedness
Corporate Debt Instruments

 Corporate Bonds - Elements

 Maturity Date – date that debt must be repaid
 Term – Length of time
 Par value/face value/maturity value – Price at which
the bondholders are repaid
 Interestrate/coupon rate – A rate expressed as a
percentage of its par value
Corporate Debt Instruments

 Corporate Debt Securities – Types

 Bearer bonds – No names
 Registered bonds – bear the name of the owner
Corporate Debt Instruments

 Corporate Bond Securities – Types

 Secured – collateral
 Unsecured (or Debentures) - creditworthiness and
reputation of the issuer.
Equity Securities
What is a stock?

 Stocksare shares of ownership in a corporation. When

you become a stockholder or an owner of shares of a
company, you become part-owner of that company.
 Stock market is a place where stocks are traded to
investors. It is composed of the primary and secondary
markets. 
Types of Stocks
 Preferred Stocks
 stocks which give shareholders preference over common
stockholders in terms of having a fixed dividend rate and
priority claim over earnings and assets in the event of a
company's liquidation.
 Common Stock
 units of ownership of a public corporation. Owners typically
are entitled to vote on the selection of directors and other
important matters as well as to receive dividends on their
holdings.
Other Types of Stocks

 Blue Chips
 The share of stable, profitable and well-known public
companies that have a long history of steady revenues and
dividend payments. It exhibits modest but dependable returns
and is relatively of lower risk.
 Income Stock
 stock paying high and regular dividends to shareholders.
Other Types of Stock

 Growth Stock
 stockof a corporation that has exhibited faster-than-
average gains in earnings over the last few years and
is expected to continue to show high levels of profit
growth.
Equity Securities
 Preferred Stock - Types
 Participating Preferred
The holder has a chance to received extra dividends
declared to common stockholder
 Cumulative Preferred
Unpaid dividends of the shareholders will be paid first
prior to common stockholders dividends
Equity Securities

 Callable Preferred
Stocks that can be redeemed by the corporation
 Convertible Preferred
Shares can be converted to common stocks
Equity Securities

 Dividends
 Declared out of the unrestricted retained earnings of the
company
 Three Types:
 Cash dividends
 Stock dividends
 Property dividends
Equity Securities
 Dividends
 Four dates to remember:
DECLARATION DATE – Date when Board declared
the dividend.
EX-DIVIDEND (OR EX-DATE) – 4-5 days before the
record date.
RECORD DATE – Dividends to be paid to holders of
record as of this date
PAYMENT DATE– When the corporation credits the
shareholders
References:
 Textbook
 Brigham and Huston. 2016. Fundamentals of Financial Management.
 Wahlen, J., Baginski, S., and Bradshaw, M. 2015. Financial Reporting, Financial Statement Analysis, and Valuation.
 Brooks, Raymond. 2016. Financial Management: Core Concepts
 Pandey, I. M. 2015. Financial management
 Alexander, J. 2018. Financial Planning and Analysis and Performance Management.
 Financial Reproting and Analysis, Charles Gibson
 Website:
 https://www.investopedia.com/terms/b/bond.asp
Disclaimer:
All definitions of stocks and its types were from https://www.pse.com.ph/stockMarket/home.html#. All
definitions were not edited.