From the course: Corporate Finance Foundations
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The difference between a stock and a bond
From the course: Corporate Finance Foundations
The difference between a stock and a bond
- Before we talk about security 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? - Okay, now, from space, the 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 are an owner in that corporation. The stockholder receives the stock, typically in exchange for paying cash to previous owner of the shares. - A bond, on the other hand, is evidence that the bond holder is owed…
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