Question

What is a bond and what is a share? How are they similar? What are the main differences?

Answer 1

What is a BOND -

A bond is a a kind of fixed income instrument which represents a loan that is specifically made by the investor to the borrowers . It could be a governmental or corporate bond . Its a debt security , under which the issuer owes a debt to the borrower over which they have to pay interest at the fixed intervals , or can repay the principal at the later date at the time of maturity of the bond . And its negotiable too .

What is a SHARE -

A shares is also called as stock or shares of stock . Its the equity ownership of the corporate which they use to divide into small units , So that people can be able to invest in the company's share or could be able to own some percentage of a business . There are two main types of share those are common shares and preferred shares .

How bond and shares are similar in nature -

1 . The one of the main similarity between bonds and shares is that they both are termed as securities .

2 . The capital market is divided into two parts those are Primary market and Secondary market . In the primary market the new bonds and shares issues are sold . Whereas , in the secondary market the old or existing shares and bonds are sold .

3 . Both shares and bonds are to be regulated by U.S. Securities and Exchange Commission .

What are the main differences between bonds and shares -

1 . A bond holder is lender to the government or company whereas , the stockholder is a part - owner .

2 . Stocks are indefinite , whereas bonds are held for some limited or set length of time .

3 . Stocks are the ownership stakes whereas , bonds the debts .

4 . The risk in holding a stock is higher than holding a bond .

5 . Stocks are issued by the companies whereas the bonds are issued by companies , government institutions , financial institutes etc.