first student 

adrian 

 Bonds buy or sell at different prices because the par value of the bonds changes with the market level that is involved with the bond, in other words bond prices fluctuate according to the price of the market the day the bond is brought, paid out or sold. There is a market for bonds to help maintain debt securities. "Bonds are bought and traded mostly by institutions like central banks, sovereign wealth funds, pension funds, insurance companies, hedge funds, and banks. Insurance companies and pension funds have liabilities which essentially include fixed amounts payable on predetermined dates. They buy the bonds to match their liabilities and may be compelled by law to do this" (UMGC FINC 331, "Chapter 6 bond Valuation", p. 397). Some financial analysts treat preferred stock as a special type of bond rather than as an equity security because it is considered to represent the proprietorship that is considered to be owned by the stockholder and the stockholder is entitled to a dividend payment at the end of a financial period. The relationship between bond prices and interest rates is "that the interest rate (coupon payments) is fixed. It does not change. And bonds last a long time; Like 10 years. In the meantime, the market interest rate (the interest rates in general) go up and down" (McCracken, "Bond Valuation") while the bond payout will payout the interest rate applicable when the bond was received. For example, if your bond was purchased at an interest rate of 10% and after 2 years the current interest rate is 8%, the bond was payout will honor the 10%. REFERENCE McCracken, M. (n.d.). Bond Valuation. Retrieved September 12, 2020, from http://www.teachmefinance.com/bondvaluation.html. UMGC FINC 331. (n.d.). Chapter 6 bond Valuation. Retrieved September 14, 2020, from https://learn.umgc.edu/d2l/le/content/511771/viewContent/19614937/View.

SECOND STUDENT 

STACY 

This week’s topic takes me back in time with my grandmother explaining what bonds were and why she kept them. Bonds are an economic security tool that signifies a loan made by a borrower or investor. It includes specific details about the maturity date and terms of adjustable or fixed interest payments made by the borrower. Having bonds in your possession provides a probable income source as it pays interest twice a year and you can resell it at a higher price, earning profit. In addition, bondholders are reimbursed the full principal if the bonds are kept until maturity. The price of bonds is tied to the interest payment rate. If the interest payment rate is high the bond price decreases. If the interest payment rate is low the bond price increases. Primarily, the bonds actual market price is dependent on factors such as the issuer’s credit worthiness, the expiration date of the bond, and the coupon rate in comparison to the current interest payment rate.

Corporate bonds and preferred stocks are two of the most common ways for a company to raise capital. The bonds make regular interest payments, and the preferred stocks pay fixed dividends. Bonds offer investors regular interest payments, while preferred stocks pay set dividends. If a company declares bankruptcy and must shut down, bondholders are paid back first, ahead of preferred shareholders. (Srikant, 2022). 

References

Srikant, R. (2022). Investopedia. Preferred Stocks vs. Bonds: What's the Difference? https://www.investopedia.com/articles/active-trading/111114/preferred-stocks-versus-bonds-how-choose.asp