What is the difference between a stock and a bond?
- curtisports2Lv 71 year agoFavorite Answer
Stock is ownership in the enterprise that issued their stock. As the perceived value of the enterprise rises, the value of the stock rises.
A bond is loan you make to an enterprise with the promise of future payment of interest. If you are holding a bond with a higher rate of interest than market interest rates and the issuing enterprise is strong*, the value of the bond will rise and you can sell the bond for a profit. If the company should weaken*, or in a market of rising interest rates (where you can get a higher rate of return than with this bond), the value of the bond will fall.
*Every company that issues bonds receives a credit rating from Standard & Poor, Moody, or Fitch, the Big 3 rating agencies. The rating indicates the safety of the investment. AAA/A-1 bonds are the Gold Standard, they are as safe as you can get.
Huge food company Kraft-Heinz has made some costly mistakes in recent years that have caused its rating to fall. S&P just joined Moody and Fitch in lowering K-H bonds to BBB/A-3 from BBB/A-2. The next step down is into 'junk bond' territory, where the risk of default on interest payments goes up substantially.
- tiescoreLv 61 year ago
A stock is an ownership stake in a company. A bond represents a loan to an entity, usually a company, municipality, state or national government.
- 1 year ago
A bond gives interest and has claims on assets before stockholders. A stock has voting rights and some don't but in general they do.
- Anonymous1 year ago
I am not doing your homework.
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- JudyLv 71 year ago
A stock gives you partial ownership in the company, usually a very small part. With a bond you are lending them money.
- D.E.B.S.Lv 71 year ago
They are just different by their nature.
Stock: A portion of ownership in a company. There are typically millions of shares. Most people don't own more than a few to a few hundred of them for one company. You make money by buying the shares with the anticipation that the price will change (typically go up) so that when you sell it you sell it for more. You can also make money through the receipt of a dividend that company issues to all share holders. Some do this when they are making a lot of profit as a way to give money back to their owners (shareholders). Both these things are, in general, determined by how well the company is doing. (There are other factors such as the general economy or how competitors are doing as well.)
Bonds are basically loans. Typically they are issues by governments, but companies can do the same as well. Investors buy so much of the bond, say $100 for one, and hold it for a set amount of time. After that time, the owner of that bond gets paid their $100 plus the agreed upon interest.
Bonds typically have very low risk as long as they are issued by a stable and highly rated entity. Because they are low risk, they come with a lower potential return (profit) than a stock. Stocks carry more risk since they depend on individual company performance and factors they can't control in the market. Because of the higher risk, there is potential for greater return on your investment.
- geraldLv 71 year ago
A bond is issued by government and pays a fixed rate above inflation and the value remains the same stocks can fall and be worth less or rise and the return can be bigger one is for scaredy cats and ones for the high rollers boom or bust you know all about that have a nice day