Question

What are the key differences between shares of common stock and bonds (describe at least 3)? Based on those differences, which type of security is riskier? How should their expected
rates of return to compare? Explain.

help here please..

Answer 1

Key Differences Between Common Stock and Bonds:

1. Stocks are issued by companies, whereas Bonds are issued by government institutions, companies and financial institutions, etc.
2. Stocks are equity instruments, but bonds are debt instruments.

Both debt securities and equity investments have the potential to deliver significant returns. Overall, equity investments represent an ownership interest in a company, while bonds only represent a financial interest.

3. owners of stocks are stockholders. Conversely, the holders of bonds are known as bondholders.

4. return on stocks is known as a dividend while interest is the return on debt.The return on the bond is guaranteed. Unlike stocks, whose return has no guarantee.

The risk in stocks is higher than bonds.

With these low-risk investments you are unlikely to lose money. However, they have a lower potential return than riskier investments and they may not keep pace with inflation. Stocks have a potentially higher return than bonds over the long term.

Return for Stocks and Bonds are Dividend and Interest respectively.