What are stocks and bonds? Describe how you could estimate their values. If you are investing in the stock market, which would you invest in and why?
**For full credit reply to the prompt and to another student's response. You should have two postings for your 20 points.
Week 4: Stocks and Bonds
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What are stocks and bonds? Describe how you could estimate their values. If you are
investing in the stock market, which would you invest in and why?
**For full credit reply to the prompt and to another student's response. You should have
two postings for your 20 points.
o Collapse SubdiscussionDevonte Stewart
Devonte Stewart
Jan 25, 2021Jan 25 at 1:22am
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Hi Professor and Class,
The Bond Market
The bond market is where investors go to trade (buy and sell) debt securities,
prominently bonds, which may be issued by corporations or governments. The bond
market is also known as the debtor credit market. Securities sold on the bond market
are all various forms of debt. By buying a bond, credit, or debt security, you are
lending money for a set period and charging interest—the same way a bank does to
its debtors.
The bond market provides investors with a steady, albeit nominal, source of regular
income. In some cases, such as Treasury bonds issued by the federal government,
investors receive bi-annual interest payments.1 Many investors choose to hold
bonds in their portfolios as a way to save for retirement, for their children's
education, or for other long-term needs.
Investors have a wide range of research and analysis tools to get more information
on bonds. Investopedia is one source, breaking down the market basics and the
different types of securities available. Other resources include Yahoo! Finance's
Bond Center and Morningstar. They provide up-to-date data, news, analysis, and
research. Investors can also get more specific details about bond offerings through
their brokerage accounts.
The Stock Market
A stock market is where investors go to trade equity securities, such as common
stocks and derivatives—including options and futures. Stocks are traded on stock
exchanges. Buying equity securities or stocks means buying a minimal ownership
stake in a company. While bondholders lend money with interest, equity holders
purchase small stakes in companies believing that the company performs well and
the value of the shares purchased will increase.
The stock market's primary function is to bring buyers and sellers together into a fair,
, regulated, and controlled environment where they can execute their trades. This
gives those involved the confidence that trading is done with transparency and that
pricing is fair and honest. This regulation helps not only investors but also the
corporations whose securities are being traded. The economy thrives when the
stock market maintains its robustness and overall health.
Just like the bond market, there are two components to the stock market. The
primary market is reserved for first-run equities: initial public offerings (IPOs) will be
issued on this market. This market is facilitated by underwriters, who set the initial
price for securities. Equities are then opened up on the secondary market, where the
most trading activity occurs.
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Collapse SubdiscussionBryan Dejesus
Bryan Dejesus
Feb 1, 2021Feb 1 at 11:58am
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Hi Devonte,
The stocks market and the bonds market have similarities and, more so, differences
in how they operated. The key similarity is that investors go to trade their financial
instruments in both markets. The bond market doesn't have a central trading
location, and therefore, most of the transactions take place over the counter. There
are three participants in the bond market: The issuers, the underwriters, and the
participants. The stock market is where investors trade their stocks and derivatives.
The stock market is regulated to ensure a fair environment for both buyers and
sellers. The health of a country’s economy largely depends on the health of its stock
exchange market.
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o
, Collapse SubdiscussionClark Anderson
Clark Anderson
Jan 25, 2021Jan 25 at 3:26pm
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Stocks are ownership stakes. For example, each issue of stock gains a percentage
of ownership of a firm. The firm sells parts of itself to finance activities such as
expansion, R&D, etc. At times the firm may buy back its stock to regain it's
ownership.
Bonds are more equivalent to a loan. When a firm issues bonds, they are borrowing
that money with the goal to pay back with interest.
A bond is more secure than a stock, whereas the stock has a higher potential for the
investor, but higher risk.
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Collapse SubdiscussionCamiesha Harmon-Askew
Camiesha Harmon-Askew
Jan 25, 2021Jan 25 at 3:45pm
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Clark,
You put it nice and simple. Stocks have a two types of valuations. One is a value
created using some type of cash flow, sales or fundamental earnings analysis. The
other value is dictated by how much an investor is willing to pay for a particular
share of stock and by how much other investors are willing to sell a stock for (in
other words, by supply and demand). Both of these values change over time as
investors change the way they analyze stocks and as they become more or less
confident in the future of stocks.
The fundamental valuation is the valuation that people use to justify stock prices.
The most common example of this type of valuation methodology is P/E ratio, which
stands for Price to Earnings Ratio. This form of valuation is based on historic ratios
, and statistics and aims to assign value to a stock based on measurable attributes.
This form of valuation is typically what drives long-term stock prices.
The other way stocks are valued is based on supply and demand. The more people
that want to buy the stock, the higher its price will be. And conversely, the more
people that want to sell the stock, the lower the price will be. This form of valuation is
very hard to understand or predict, and it often drives the short-term stock market
trends.
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o
Collapse SubdiscussionKimberly Freeland
Kimberly Freeland
Jan 29, 2021Jan 29 at 11:40pm
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Hi Professor and class,
Stocks and bonds present two distinct ways for companies to raise money to
evolve/expand the organization. Stocks are ownership stakes in a company. For
instance, when a person buys into a company, stocks are issued and the stock
represents the tangible ownership stakes in the company. Bonds are different from
stocks in that they are a loan to you from the company. Buying a bond does not
provide you with equity/ownership in the company. When one purchases a bond
from a company or even the govt, these organizations are indebted to the purchaser
and they will pay you interest on the loan for a specified time period and then the full
amount for which the bond was purchased.
Some of the risk they are associated with the purchase of bonds entail if the
organization dissolves/goes bankrupt during the bond period. This means that the
interest and full payment may not be received. The time periods of bonds are based
on the type of bond purchased
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Collapse SubdiscussionCamiesha Harmon-Askew
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