Final answer:
A bond and a bank loan are both methods of raising capital, involving borrowing funds to be repaid with interest, but they differ in terms of tradeability, term length, risk distribution, and negotiation terms. For home equity, it is calculated as the down payment, such as $20,000 equity on a $200,000 house with a 10% down payment.
Step-by-step explanation:
From a firm's perspective, a bond and a bank loan are both methods of raising capital. They are similar in that both involve borrowing funds that must be repaid with interest. However, they differ significantly in a few areas. For example, a bond is a fixed income instrument that is traded on the securities market, typically has a longer term, and is sold to numerous investors, thus spreading out the risk of the loan. On the other hand, a bank loan is typically negotiated privately between the firm and a financial institution, usually has a shorter term, and may come with more restrictive covenants.
In the case of equity in a home, when someone like Fred buys a house for $200,000 and makes a 10% down payment, the immediate equity in the home would be the amount of the down payment, which in this case is $20,000 ($200,000 x 10%). The rest of the purchase is financed through a mortgage loan.