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Chapter 1: Q.3 (page 66)

Explain the main difference between a bond and a common stock.

Short Answer

Expert verified

Stocks give you some of the ownership of the company, but bonds are loans from you to the company or the government.

Step by step solution

01

Step. 1 Introduction

Financial markets are specialized markets for trading securities such as stocks, bonds, currencies, bills and checks, and derivatives.

02

Step. 2 Explanation

Stocks (also known as equity) are securities that represent ownership of a portion of a company. Some companies provide dividend to their shareholders.

A bond is an instrument used by organizations to raise capital. Different types of bonds can be corporate bond, government bond, etc. A bond is an agrrement that the organization owes the lender topay them interest and the principal amount on the maturity of bond.

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Most popular questions from this chapter

In Exercise 1, you collected data on and then graphed the Dow Jones Industrial Average (DJIA). This same site reports forecast values of the DJIA. Go to http://www forecasts.org/data/index.htm, and click on FFC Home at the top of the page. Click on the Dow Jones Industrial link under Forecasts in the far-left column.

a. What is the Dow forecast to be in six months?

b. What percentage increase is forecast for the next six months?

How can changes in foreign exchange rates affect the profitability of financial institutions?

What effect might a fall in stock prices have on business investment?

When there is an increase in the value of the European Union鈥檚 euro, all else equal, how will American businesses be affected? What will happen when there is a decrease in the value of the American dollar relative to the Japanese yen, given all else is equal?

If history repeats itself and we see a decline in the rate of money growth, what might you expect to happen to

a. real output?

b. the inflation rate?

c. interest rates?
See all solutions

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