What are the principal differences between stocks and bonds? What are the risks associated with investing in stocks and bonds? Which of these classes of securities is riskier? Explain.
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>Stock represent an ownership in corporation while bonds are long term debts in which the issuing corporation promises to pay in due date.
>Stock are determined by mixture factors ,e,g earnings per share and also demand and supply, while bonds fluctuate primarily on interest rate.
>Stock are risky to invest in, bonds are less risky
>holders of stock can vote on company's certain issues, while bonds have no voting rights
Risks associated :
Interest risk- sudden rise in interest rates
Inflation risk-causes the dollar to weaken
market risk -declination in the market.
Timing risk- investment performing poorly after purchase or sale
Generally speaking, stocks carry more risk than bonds. This is
because stocks can fluctuate dramatically for a wide variety of reasons,
many of which may not be clear at all to the investor.
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