From the course: Foundations of Treasury Management
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The difference between a stock and a bond
From the course: Foundations of Treasury Management
The difference between a stock and a bond
- Let's talk about two basic types of financial security, stocks and bonds. A stock is evidence of ownership in a company. And a bond is evidence that the bond holder has loaned money to the company. 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…
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