From the course: Finance Foundations

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The difference between a stock and a bond

The difference between a stock and a bond

From the course: Finance Foundations

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The difference between a stock and a bond

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Before we talk about securities markets themselves, let's talk about the two basic types of securities; stocks and bonds. To illustrate the difference between the two, consider this. From outer space, you're watching through a telescope, a transaction between an individual and a company. You see the individual give the company money. You see the company give the individual a piece of paper. Did the company sell a stock or a bond? Well, from space that transaction looks the same, exchanging money for a piece of paper. Although the issuance of stocks and bonds looks the same from a distance, they represent fundamentally different transactions. A stock is evidence that a stockholder is an owner of a portion or a share of a corporation. If you own a share of stock, you're an owner in that corporation. The stockholder receives the stock, typically, in exchange for paying cash to the previous owner of the share. A bond, on the other hand, is evidence that the bondholder is owed money by the…

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