When the US sells bonds is this similar to stocks being sold by a corporation to fund its expansion?
how does it work?
Answer:
Bonds and stocks are two separate and distinct financing mechanisms. Stocks generally denote an ownership interest and stockholders frequently have voting rights associated with the stock issue. Bonds are a debt instrument payable on a predetermined date for a predetermined amount.
The proceeds from either the sale of stocks or bonds can be used to fund expansions of the issuing corporation.
A bond is not the same as stock. A bond is a timed loan, with a fixed payoff date and amount. Stock represents ownership in a company. The US Government sells bonds - no one gets any "ownership" in the gov't. Businesses do both - they sell stock, and the stockholders collectively are the owners of the company. They also sell bonds to raise money, and the bonds do not give the buyer any ownership.
Bonds are used to raise money. You have the face value of the bond (par value as it is sometimes called) and each bond has a coupon rate. The coupon rate is the payment the company makes to the bond holder. If a $1000 bond has a 5% coupon rate the holder will receive $50 annually over the lifespan of the bond and at the end of the last year when the bond matures they will receive the face value of the bond plus the last coupon payment. Bonds are bought and sold on the basis of what inflation and interest rates are expected to do.
Here is a good article that goes more indepth on bonds:
http://stocks.about.com/od/understanding...
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Answer:
Bonds and stocks are two separate and distinct financing mechanisms. Stocks generally denote an ownership interest and stockholders frequently have voting rights associated with the stock issue. Bonds are a debt instrument payable on a predetermined date for a predetermined amount.
The proceeds from either the sale of stocks or bonds can be used to fund expansions of the issuing corporation.
A bond is not the same as stock. A bond is a timed loan, with a fixed payoff date and amount. Stock represents ownership in a company. The US Government sells bonds - no one gets any "ownership" in the gov't. Businesses do both - they sell stock, and the stockholders collectively are the owners of the company. They also sell bonds to raise money, and the bonds do not give the buyer any ownership.
Bonds are used to raise money. You have the face value of the bond (par value as it is sometimes called) and each bond has a coupon rate. The coupon rate is the payment the company makes to the bond holder. If a $1000 bond has a 5% coupon rate the holder will receive $50 annually over the lifespan of the bond and at the end of the last year when the bond matures they will receive the face value of the bond plus the last coupon payment. Bonds are bought and sold on the basis of what inflation and interest rates are expected to do.
Here is a good article that goes more indepth on bonds:
http://stocks.about.com/od/understanding...
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