The Stock and Bond Markets

Paper Summary:

Both stock prices and bond prices in the securities markets in the United States tend to be volatile. The volatility of these markets creates risk for the investor. Further, the stock market and the bond market frequently respond differently to financial, economic, and political stimuli. This research compares and contrasts the stock market and the bond market in the United States from the perspective of the investor. The assessment discusses advantages and disadvantages of each class of securities. The paper includes graphs and tables.

From the Paper:

"Thus, while bond price volatility is in part a function of market interest rates, bond price behavior is also a function of coupon interest rates and term-to-maturity periods as functions affecting bond yield. Two approaches to yield determination for bonds predominate?current yield and promised yield. A bond's current yield is the amount of current income that a bond provides (annual interest) relative to its prevailing market price. Promised yield, by contrast, includes both interest income, price appreciation or depreciation, and total cash flow received over the life of the instrument in the bond valuation process. The promised yield is a function of the present value concept. Thus, the promise yield of a bond, in effect, is the internal rate of return of the bond (Gitman, Joehnk, & Pinches, 1995)."

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