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Chapter 1: Q.3 (page 66)

Explain the main difference between a bond and a common stock.

Short Answer

Expert verified

Stocks give you some of the ownership of the company, but bonds are loans from you to the company or the government.

Step by step solution

01

Step. 1 Introduction

Financial markets are specialized markets for trading securities such as stocks, bonds, currencies, bills and checks, and derivatives.

02

Step. 2 Explanation

Stocks (also known as equity) are securities that represent ownership of a portion of a company. Some companies provide dividend to their shareholders.

A bond is an instrument used by organizations to raise capital. Different types of bonds can be corporate bond, government bond, etc. A bond is an agrrement that the organization owes the lender topay them interest and the principal amount on the maturity of bond.

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Most popular questions from this chapter

Is everybody worse off when interest rates rise?

Go to the St. Louis Federal Reserve FRED database and find data on the M1 money supply (M1SL) and the 10-year treasury bond rate (GS10). Add the two series into a single graph by using the “Add Data Series” feature. Transform the M1 money supply variable into the M1 growth rate by adjusting the units for the M1 money supply to “Percent Change from Year Ago.”

a. In general, how have the growth rate of the M1 money supply and the 10-year treasury bond rate behaved during recessions and during expansionary periods since the year 2000?

b. In general, is there an obvious, stable relationship between money growth and the 10-year interest rate since the year 2000?

c. Compare the money growth rate and the 10-year interest rate for the most recent month available to the rates for January 2000. How do the rates compare?

How can changes in foreign exchange rates affect the profitability of financial institutions?

The following table lists the foreign exchange rate between U.S. dollars and British pounds (GBP) during April 2017. Which day would have been the best for converting $250 into British pounds? Which day would have been the worst? What would be the difference in pounds?

What is one of the reasons for inflation in your country? Provide empirical evidence to support your answer.
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