Stocks vs. Bonds

Question 11 • 26-27 Ignite Financial Literacy Personal Finance - EL3403

What is the largest difference in stocks and bonds?

Answer

Bonds are a binding contract, promising the holder a portion of the company's annual profit, unless it is unprofitable, while stocks are a very standard investment and pay off a predetermined amount after a period of time.

Stocks are a share of ownership in a company and give the stockholder voting rights, while bonds are similar to lending a company or government money.

Stocks are the most secure of all investments and bonds are some of the least secure.

Bonds are available to the public, while stocks are reserved for the financial elite.

Explanation

Stocks represent partial ownership in a company and may give shareholders voting rights. Bonds, by contrast, are loans made to a company or government, which typically promises to repay the loan with interest. Therefore, choice B correctly describes the largest difference between stocks and bonds.

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