Chapter 11-12 Bonds and Stocks

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4 Apr 2012
April 2nd 2012
Chapter 11-12
Stocks And Bonds
-liability is a debt
-debt must be repaid
-debts means paying interest
-bonds are IOUs
-Lender buys the bond, borrower promises to pay interest
Bonds: Not Secured
-Bonds not normally secured
-Investor (buyer) relies on general credit worthiness of issuer (seller)
-So bonds usually sold by large borrowers: govts, utilities, banks
-Is ownership
-is never repaid
-Owners: receive no interest
-Owners: share profits
-Owners: risk loss
-Most common form of shares: “common shares”
-1 common share = 1 vote
-If business makes profit, and choses to, it will pay dividends
Why Sell Shares?
-Businesses are expensive to start
-Entrepreneurs need lots of $$$
-“Equity” is the alternative to “debt”
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