Question

Question: Distinguish between debt security and equity security.

Short answer

Answer

Some of the differences between them are ownership, maturity date, type of return, voting right, and management participation.

Step-by-step solution

Definition of a debt security

Debt securities are securities in which the issuer of the debt security promises to pay the amount to the holder of the security on the maturity date with the fixed rate of interest.

Definition of equity securities

Equity securities are securities that show the ownership status of the company. The holder of the equity securities is known as the company's owner.

Difference between debt securities and equity securities

1. The holder of the equity securities is known as the company's owner, whereas debt security is treated as the loan for the company.
2. Debt securities have a maturity date, whereas equity securities have no maturity date.
3. Equity security holders get variable returns, whereas the holder of the debt securities holder gets a fixed return on their investment.
4. Equity securities holders have voting rights, whereas debt securities holders have no voting rights,
5. Equity securities holders can participate in the management, whereas debt securities holders have no right to participate in the management.