Stocks:

-Represents ownership in a company

-Compensated in dividends or appreciation of ownership
-Taxed at Capital Gains tax rate for investor
-Company cannot deduct dividends on taxes
-Risk: more risky than bonds so the return should be more than
bonds
If company issues equity they are issuing stock and it is under
equity on balance sheet.
Alternative Investments:
-EX: Hedge funds, private equity and venture capital, real
estates, private companies
Bonds:
-Represents a promise to pay (loan or IOU) generally fixed
amount plus compensation called interest
-Taxed at ordinary income tax rates
-For company (issuer) the interest payments are tax deductible
-Risk: less risky than stocks because of higher priority claim
- If company issues debt they are issuing bonds and it is under
liabilities on balance sheet.
Factors that affect Interest Rate:
-Risk
-Structure (collateral)
-Maturity/Term
-Tax Treatment: taxable v. tax-exempt
-Liquidity
-The negatively sloped curve is called an inverted yield curve
-S&P can give a seal of approval or rating on stocks and bonds
-Say you need to sell your 10-year treasury bond at par 100 5%
yield 6 years left to maturity but the market indicates a higher
current yield so then you must sell the bond at a discount. If the
current interests yield rates were below the value of your bond
then you would sell at a premium.
- Tax free bonds (yield a lower return rate)