Answer to Question #259530 in Finance for sawma

Question #259530

a bond is a type of investment where the investor (bond holder) lends money to the borrower (the issuer). An issuer sells bonds to raise funds and agrees to pay the bond holder an agreed interest rate at fixed intervals throughout the life of the bond. Interest payments for the bond are referred to as coupons. Bond terms normally range from 2 years to 30 years. At the end of the term, the issuer pays the full amount invested back to the bondholder. In addition, the issuer appoints an agent or a registrar of bonds to handle the issuing of bonds on their behalf. (RBF, 2020) With reference to what bonds are discuss the foll Required: a. Financial institutions such as insurance companies and pension funds commonly purchase bonds. Explain the flow of funds that runs through these financial institutions and ultimately reaches corporations that issue bonds. (5 marks)

Expert's answer

Stocks are securities that allow investors to have a stake in the companies according to their proportional holding shares of the company.

Bonds are debt instruments in which investors lend money for specific period of time and interest rate.

Holding share in a company entitiles the holder for a share of profits of the company and voting rights in how the company is run and also capital gains when the shares are sold.Whereas bond holders get interest payments perodically at a fixed rate and principal amount at the end of the bond maturity period.

Stock holder get dividend when the company earns profits whereas bond holder get interest irrespective of company earns profits, i.e., guarantee interest payments.

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