Question

2. How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”? (25%)

Answer 1

In case of stock the shareholders earn return in the form of dividend while in case of bond it earns return in the form of coupons.

Coupons are paid on regular time interval and it remains constant throughout it's tenure. In case of stock dividend amount varies from one year to another.

Stock are not redeemable while bonds are redeemed on the date of maturity.

Stocks have perpetual life.

Stock holders receive dividend and it varies from one year to another. Bonds carry fixed coupon.

Stocks are considered to be more riskier than bond.

Bonds carry fixed payment on regular time interval. So, it is also known as fixed income security.

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