A stock’s beta is a key input to hedging in the equity market. A bond’s duration is key in fixed- income hedging. How are they used similarly? Are there any differences in the calculations necessary to formulate a hedge position in each market?

Stocks and bonds are the two main classes of assets investors use in their portfolios. Stocks offer an ownership stake in a company, while bonds are akin to loans made to a company (a corporate bond) or other organization (like the U.S. Treasury). In general, stocks are considered riskier and more volatile than bonds.

Explanation: The difference between stocks and bonds is that stocks are shares in the ownership of a business, while bonds are a form of debt that the issuing entity promises to repay at some point in the future. A balance between the two types of funding must be achieved to ensure a proper capital structure for a business.

Important Formulas of Stocks and Shares

Investment/Cash required = Stock × Market Price/100. Income/Dividend = Stock × Rate/100. Stock purchased/sold = Income × 100/Rate% Investment/Cash required = Income ×Market Price/Rate% Income/Dividend = Investment × Rate/Market Price.

Formula for Bond:

F = the bond's par or face value. t = time. T = the number of periods until the bond's maturity date. This formula shows that the price of a bond is the present value of its promised cash flows. As an example, suppose that a bond has a face value of $1,000, a coupon rate of 4% and a maturity of four years.