Finance 450 Create a matrix in which you describe characteristics of fixed incom

ID: 2628096 • Letter: F

Question

Finance 450

Create a matrix in which you describe characteristics of fixed income and common stock securities.

Write a 500-word summary to accompany your matrix explaining the significance of understanding the differences between fixed income and common stock securities in terms of providing sound financial management for a corporation.

While APA format is not required for the body of this assignment, solid academic writing is expected and in-text citations and references should be presented using APA documentation guidelines, which can be found in the APA Style Guide, located in the Student Success Center.

Explanation / Answer

CHARACTERISTICS

FIXED INCOME SECURITIES

COMMON STOCK SECURITIES

Holders of these types of securities receive relatively constant distributions of interest or dividend payments over time and have a fixed claim on the assets of the firm in the event of bankruptcy.

The right to receive dividend payments typically from earnings -- if authorized by the board of directors

Fixed-income securities include bonds issued by the federal government, state and municipal governments, federal agencies and corporations.

The power to sell the stock (liquidity rights) and realize capital gains on public trading markets or in private transactions-- if there are willing buyers.

The interest on variable-income securities changes based on things such as the short-term interest rate. With a fixed-income security, the payment is consistent, regardless of interest-rate changes.

The right to receive consideration in a merger or other fundamental transaction -- if approved by the board and the shareholder.

Fixed income securities, particularly government bonds, are considered a safe investment. Because there's less risk of a loss, the rate of return is lower than the rate on riskier investments, the Charles Schwab investment firm states, which may outperform fixed-income securities when the interest rates are rising.

The right to vote to elect directors and to approve fundamental transactions (mergers, sale of assets, amendments to articles, dissolutions)

Putting money into stocks or real estate gives an investor some degree of ownership. Fixed-income securities do not; the retirement-income.net website compares them to a loan to the government or corporate body issuing the security.

The right to receive a proportionate distribution of assets on corporate liquidation -- if the board and shareholders approve a dissolution

In the United States, the sales of securities are regulated by organizations like the Financial Industry Regulatory Authority and the Securities and Exchange Commission or for short the SEC. Publicly traded companies have two classes of securities they issue, which are common stock securities and preferred stock securities. A security is what is considered a paper asset with the potential to be traded in small denominations (mostly) in the secondary market. Securities that pay a fixed amount of income are considered to be fixed-income securities i.e. bonds or preferred stocks. Bonds are debt securities that are dispensed by the government and corporations having a face value, or par.

Unlike bonds preferred stocks are a representation of equal ownership within the issuing corporation having no maturities but the ability of the giver to cash in, or call the shares at par.

Now a common stock security on the other hand is different from fixed-income securities. They are considered to be the simple form of ownership of any organization or corporation. Every corporation issues a specific number of common stock shares, which are approved for issuance by a board of directors. Every single share symbolizes an equal percentage of the ownership of the corporation, which entails certain rights and characteristics (rights extend to voting on issues affecting the corporation on over to the right to receive dividends that is if they are approved by the board of directors of the corporation).

For the most part both preferred and common stock securities are issued to raise capital for a business or organization. However of the two securities common stock may very well be the better choice for investors needing to control the direction the company goes in. While preferred stock may be a better choice because the investors don