Bond vs Stock (Equity)
Bond and Stock (Equity) are two Money, Banking & Finance concepts in AP Economics that students often mix up. In short: bond is a bond is a debt security in which an investor lends money to a government or company in exchange for periodic interest and repayment at maturity. Meanwhile, stock (equity) is a stock is a share of ownership in a company, giving the holder a claim on part of its assets and profits. Here is how they compare side by side.
A bond is a debt security in which an investor lends money to a government or company in exchange for periodic interest and repayment at maturity.
Bond prices and interest rates move in opposite directions: when rates rise, existing bond prices fall. Central banks buy and sell government bonds in open market operations to change the money supply. Bonds are generally lower-risk than stocks.
A stock is a share of ownership in a company, giving the holder a claim on part of its assets and profits.
Companies issue stock to raise financial capital. Shareholders may earn returns through dividends and rising share prices. Stocks are riskier than bonds but historically offer higher average returns.