Young People & Investments

An equity investment simply means the purchasing and holding of shares of stock, (on a stock market) by individuals or firms. They anticipate income from capital gains and dividends, as the value of the stock rises and the companies make profits respectively.

Forms of investments

• Shares of stock
  
  Shares are portions(fraction) that a company/organization divide its assets into and offer them to private or public. Thus shares of stock is the amount invested in the company by an individual/company. Total sum invested in a corporation mostly by an individual or a group of persons.
  Shareholder is a individual with shares of stock, and is entitled to dividends. Dividends is a share of the distributable profits of the company. The more shares you own the much dividends one receives.
  A shareholder can also make capital gains by selling the shares when the value of the stock rises.
  
• Bonds/Debentures
  
  Bonds are basically debts. Companies/ corporation sales bonds to individual to increase the capital base of the of the company. When an individual or a group of persons purchase a bond it simply means that you have given credit to the company/corporation (even government) at an agreed return rate. The investor in this case is referred to as a creditor to the company.
  Here there creditor is not affected by the outcome of the company's activities weather losses or profits. Bond is a form of loan that has a maturity period after which the creditor is paid back the amount invested and the accrued interest agreed upon investing.
  The creditors have a higher claim of the company's asset than the shareholders in case the company is declared bankrupt.
  The interest are usually paid in an agreed rate(usually semiannually) within the maturity period and after the period, you receive the principle amount.
  The term “Bonds” is used when the government is the receiver of the investment while “Debentures” refers when a private institution is the receiver.

Conclusion
You want to start a business and the you cannot raise the capital, you approach a relative for a loan of Sh.100k and agreement is written done to “pay back after one year with 5% interest”. (This a debenture and the principal amount is Sh.100k while the interest rate is 5%). You run the business for a while and later sale half the shares of the business to your friend at sh.50k. You put it in writing that the business issues 1000 shares and friend takes 500 at sh.50k . (Now the friend is a shareholder with 50% of stock). By end year business has a turnover of sh.500k, you pay the relative sh.100k plus sh.50k interest. The cost of establishing the business was 100k and the cost of paying the personnel including you is sh.200k. The profit (500-150-100-200)k = sh.50k. Then you pay sh.25k to the friend (shareholder) and yourself (owner). Now the sh.25k paid to the shareholder is called dividends.
Try the questions below.

Question 1.  

Company A offers 11% stock at Sh. 143 while company B  offers 9.5% stock at Sh. 117. Of the two which is the best investment?

Question 2.
How much must one invest in 10% stock at Sh. 96 in order to obtain an income of Sh. 650?

                                                                   Any comments are highly appreciated.