Value Of Bonds and Stocks

 Blog 6

Bonds and stocks are two of the most popular types of investments available in the financial markets. Both offer different investment opportunities, risks, and potential returns, and understanding the differences between them can help investors make informed investment decisions. In this Blog, we will be discussing about Bonds and Stocks

Bonds

Picture reference  https://seekingalpha.com/article/4568475-bonds-roar-back 

A bond is a type of fixed-income investment that represents a loan made by an investor to a borrower, typically a corporation or government entity. When an investor purchases a bond, they are effectively lending money to the issuer, and in exchange, they receive regular interest payments over a fixed period of time, called the bond's term or maturity.

At the end of the bond's term, the issuer is required to repay the full amount of the principal, or face value, to the investor. Bonds are generally considered to be lower-risk investments than stocks, and are often used by investors seeking a reliable source of income or a way to diversify their investment portfolio.

Value of Bond

The value of a bond is determined by a combination of its face value, coupon rate, and the prevailing interest rate in the market. When the bond's coupon rate is higher than the prevailing market interest rate, the bond is said to be trading at a premium, and its price will be above its face value. When the bond's coupon rate is lower than the prevailing market interest rate, the bond is said to be trading at a discount, and its price will be below its face value. If the coupon rate is equal to the market interest rate, the bond will be trading at its face value

Example of Bond - "Disney Co. Goes the Distance : Interest: Entertainment giant sells $300 million in 100-year bonds, which stretches boundaries for long-term finance"

https://www.latimes.com/archives/la-xpm-1993-07-22-fi-15802-story.html

Stocks

Picture reference - https://www.bankrate.com/investing/how-to-trade-stocks/

A stock, also known as a share or equity, represents a unit of ownership in a company. When an investor buys a stock, they are purchasing a small piece of the company and become a shareholder. Shareholders have the right to vote on company decisions and may receive a portion of the company's profits in the form of dividends.

Value of Stocks

The value of a stock, also known as the stock price, is the market price at which the stock is currently trading. The stock price is determined by the forces of supply and demand in the stock market, and can fluctuate based on a variety of factors, including the company's financial performance, industry trends, economic conditions, and investor sentiment 

Below are some key important terms related to stock valuation:

Dividend (Div): A dividend is a payment made by a company to its shareholders as a portion of its profits. Dividends can be paid out regularly or irregularly and can be in the form of cash or stock.1.     

Dividend Yield (% Yield): The dividend yield is a measure of the annual dividend payment as a percentage of the stock price. It is calculated by dividing the annual dividend per share by the current stock price.1.     

Price-to-Earnings Ratio (PE Ratio): The price-to-earnings ratio (PE ratio) is a valuation ratio that compares the price of a stock to its earnings per share (EPS). It is calculated by dividing the current market price per share by the EPS.