what is the difference between bonds and stocks? and Russian bonding

what is the difference between bonds and stocks?

I need to use disney's stocks and bonds to explain the difference between primary and secondary markets. I know what primary and secondary markets are and that stocks and bonds are securities. if you have own a stock you are an owner of the company and if you own bond you are a creditor.can you give me a more detailed answer to this?


Bond best answer:

Answer by Volleyball Socrates Jr.
Looks like you've nailed it, "if you have own a stock you are an owner of the company and if you own bond you are a creditor," is a perfect definition.

Secondly, the difference between primary and secondary is that the primary market is for new issues, and is the only time that the company benefits from the sale of its stocks or bonds. After issued in the primary market, (and the company receives the proceeds), all further buys and sells of the company's securities are executed in the secondary market, and benefit only the outside investors.

Now, a little on stocks (owners) and bonds (creditors).

As a creditor, you do not have any say in the operation of the company (aside from any specific bond covenants). You are paid a fixed amount of "interest" on your loan. The good news about interest is that even if the company is doing poorly, you still get paid, no matter how much it hurts them to do it. However, the bad news about interest is that if the company is doing amazingly well, you *only* get paid your interest.

However, as a stock holder (owner), you *do* have a say in the operation of the company. You vote for a director at the annual meeting. For some major issues, the management of the company has to ask you to vote on things. You can fire the management of the company (through your director). As a stock holder, you are entitled to the "residual" income of the company, which is sometime paid out as a dividend (more on dividends later). That is, a stockholder is entitled to whatever is left over after a company pays all of its expenses, interest, and taxes. The bad news is that sometimes nothing is left over because the company had to take a loss. In this case a bondholder would get paid, but the stock holder would lose money. The good news is that if the company makes a lot of money, you are entitled to all of it (where as the bond holder only gets the fixed interest he was promised).

Hence, there is more risk with being a stock holder than being a bond holder, and so there is more return. In a good company, its stock usually return a few points more than its bonds.

Stocks also pay dividends. Dividends looks a little bit like the interest paid on the bond, but it is technically very different. The company is not obligated to pay a dividend, but it is obligated to pay interest on a bond. If a company does not pay its dividend, you can get grumpy, but not much more. If a company does not pay its interest on a bond, a situation called a default, you can force the company to liquidate its assets to pay your dividend, even if it means killing the company. As a bondholder, you get first dibs on whats leftover in bankruptcy. As a stock holder, you have to wait until the bond holders get paid off before you can claim any remaining assets.

Additionally, as a stock holder, you can only get a dividend if the company makes a profit, but profitable or not, a company has to pay interest on its bonds
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Bond

Russian bonding


Image by muuranker
A brick wall of the restaurant outside St. Petersburg where we had lunch on a day trip. I was amazed by this fantastic bonding. One assumes that it has no structural purpose.

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