Various Forms of Corporate Capital

Stocks and Bonds Basics

There are a number of different types of bonds that are existent. These bonds are typically redeemable in different ways and for different types of value. For instance, a convertible bond is the type that one can redeem for stock options at various prices (Yamam, 2014, p. 63). The number of stock options for which it can be redeemed varies, which affects the valuation of the bond. Another type of bond is a pure discount bond, which must mature before it can be redeemed for cash. Once such a bond does mature, however, it is always redeemable for its face value -- which certainly contributes to the factors for the valuation of this variety of bond. Other types of bonds include a callable bond. This bond enables the entity that has disseminated the bond to buy it back. However, the bond issuer can only repurchase this bond at certain periods of time, which may include predefined time periods.

Several different factors exist that help to determine the value of a particular bond. As such, there are a couple of different relationships that one must consider in properly evaluating the value of a particular bond. The crux of the matter is that bonds are largely valued by how much currency one can redeem them for, at any point in time. Some of the relationships that influence the cash value of bonds include discount rate of bond at the time that it matures. Those attempting to redeem bonds have to account for a rate of discount -- based upon the rate of discounts for similar bonds and for similar rates -- which helps determine the amount of money they will receive for the bond. Another important relationship is that pertaining to embedded options and option pricing that can detract or add to a bond's value. Finally, there are different yields that often influence a bond's value.

It is critical to distinguish the different facets denoted by the terms common stock and preferred stock. The latter is typically regarded as a capital stock. One of the most attractive facets of a capital stock is that yields dividends and pays them out to those who hold these stocks before dividends are paid out to those that have common stock. As such, those who have the former can redeem the value of these stocks before those that have the latter can. At a more granular level, preferred stock is actually a combination of a bond and a common stock; it is generally due to its qualities of the former that it pays dividends before dividends are paid to those who have common stock. Typically, preferred stock that has the highest amount of yields are those that in utilities or in a variation of real estate options. Such options could include real estate investment trusts and real estate securities income funds.