Question

What are preferred stocks vs common stock vs bonds?

Answer 1

The stocks which pays dividends to the preferred stock holders without giving partnership to them are called preferred stocks. Cost of preferred stock is higher than cost of dent but less than cost of equity. In case of liquidation preferred stock holders are given priority over common stock holders but lower priority than bond holders. They are not traded in the secondary market.

The stocks which when purchased provide partnership in the firm and dividends may or nit be received. It cost is higher than all . This is because in case of liquidation stock holders are paid the last. Stocks are issued during initial public offer and are traded in the secondary market. Here a stock holder gains from dividend and capital gain on stock.

Bonds provide regular coupon payments on the par value and the face value is redeemed at the maturity of bond. In bond cost of debt is tax deductible.. Moreover in case of liquidation bonds are given priority. Hence cost of debt in bonds are least.