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How do corporate bonds differ from corporate stocks?
Corporate bonds are issued to investors at a fixed amount, and are paid back with a set amount of interest, usually regardless of minor fluctuations in the company's performance. Stocks, on the other hand, return value based on the daily fluctuations in the company's value. There is greater risk in stocks.
Bonds are certificates that represent money loaned to corporations, while stocks are certificates that represent the shares of ownership in a corporation. Corporations borrow money by selling bonds to investors. Bondholders (those who have loaned money to the corporation by buying its bonds) receive interest on their investment and are eventually repaid the full amount of their loan. Corporations also sell stocks or stock certificates, which are shares of the ownership in the corporation. Owners of stocks in a corporation have invested in hopes of getting a portion of the corporation's profits through dividends. They also hope to share in the corporation's increased value through higher stock prices.
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