What is the difference between a stock and a bond?
Craig G. Rennie, Clete and Tammy Brewer Professor of Financial Markets in the Sam M. Walton College of Business and managing director of the Garrison Financial Institute replies: Stocks and bonds are two different financial securities. Stocks represent equity ownership in corporations, either as common or preferred stock. Common stock gives shareholders ownership claims against the residual cash flows of the firm – i.e., what remains after creditors and preferred shareholders are paid. Preferred shareholders have claims against cash flows after creditors are paid, typically in the form of fixed dividends. Common shareholders expect higher returns over longer periods than preferred shareholders because they bear more risk. Dividends are usually paid quarterly, if at all in the case of common stock, are not tax deductible by the issuer (unlike interest), and, together with capital gains, currently receive preferential income tax treatment in the hands of recipients. As owners of corporat
Bonds and stocks are both securities, but the difference is that stockholders own a part of the issuing company , whereas bond holders are in essence lenders to the issuing company. Also bonds have a definite lifespan, whereas stocks may be held indefinitely. Investment Principles: How to invest in the Financial Markets? Investing in the stock market through bonds or stocks can be either a long-term or a short-term investment. Investors who wish to deal in the equity market must have the desire for long-term investment. To invest in the stock market, you simply may buy stocks of several companies, when the share’s value of that company appreciates your shares in that particular corporation will worth more. If the company runs into trouble and loses, its stock value may drop and so will your shares. Of course this is not always the case because there are many variables that affect the company’s share price. What variables should you consider whilst investing in the Financial Markets? •
A stock is a share of a company, or a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Also known as “shares” or “equity”. A bond is a debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
