Stocks and Bonds
How do stocks make money?
Stocks can make money through two primary sources: capital appreciation and dividends. Capital Appreciation occurs when the stock’s price increases over time, allowing you to sell it for a profit. Dividends are payments made by companies to their shareholders as a portion of their profits.
What are the different types of stocks?
There are two main types of stocks. Common Stocks represent ownership in a company and usually come with voting rights. Preferred Stocks typically offer fixed dividends but may not have voting rights.
What is diversification, and why is it important for stock investors?
Diversification means distributing your investments across different stocks and asset to reduce risk. It’s important because it helps mitigate the impact of poor performance from any single investment.
What are the different types of bonds?
There are various types of bonds, including government bonds, municipal bonds, corporate bonds, treasury bonds, and high-yield bonds (also known as junk bonds).
What is the difference between a bond’s yield and its coupon rate?
The bond’s yield represents the effective interest rate earned by an investor, taking into account its current market price, while the coupon rate is the fixed interest rate that the issuer agrees to pay the bondholder based on the bond’s face value.
Difference between Stocks and Bonds
Stocks and Bonds are both common types of investments, but they represent different ways of investing in a company. Stocks, also known as equities, represent ownership in a company; whereas, Bonds are debt securities issued by governments, municipalities, or corporations to raise capital.