March 22, 2017
Bonds v. Stocks
- Bonds are loans or “IOU’s” that represent debt that the government or a corporation must repay to an investor. The bondholder has no ownership of the company
- If a corporation issues and then sells a bond, it is a liability for corporation but asset for the buyer
** if nominal interest rate falls, value of the bond increases (inverse relationship)**
Stocks
Stockowners can earn a profit in 2 ways:
- Dividends- portion of a corporation's profits are paid out to stockholders
- the higher the corporate profit, the higher the dividend
- Capital gain- earned when stockholder sells stock for more than he or she paid for it. stockholder that sells stock at a lower price than the purchase price suffers a capital loss
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