Economics 10b Chapter Notes - Chapter 26: Financial System, Dividend Yield, Demand Curve
10 Feb 2014
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A buyer can hold a bond until the date of maturity or sell the bond at an earlier date to someone else. If the owner of the bond needs money before the date of maturity, he must sell the bond to someone else probably at a reduced price. As a result, they typically pay lower interest rates. Because government bonds are believed to be more secure, they pay lower interest rates. Corporations receive credit ratings from private agencies like standard & poor: stock market: Stock: a claim to partial ownership in a firm. Equity finance: the sale of stock to raise money: the owner of a stock is a part owner of the corporation, whereas the owner of a bond is a creditor of the corporation. If the company is profitable, the stockholders enjoy the benefits of the profits, whereas bondholders only get the interest on their loans.
