What is the main difference between a stock and a bond?

• A. A stock is only issued by governments, while a bond is only issued by corporations.
• B. A stock guarantees fixed interest payments, while a bond provides dividends based on company profits.
• C. A stock represents ownership in a company, while a bond represents a loan made to a company or government.
• D. A stock is a short-term investment, while a bond is always a long-term investment.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a stock: A stock represents ownership in a company. When you purchase a stock, you are buying a share of the company, which gives you partial ownership and potentially voting rights in corporate decisions.
2. Understand the concept of a bond: A bond represents a loan made to a company or government. When you purchase a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
3. Compare the key difference: Stocks signify ownership, meaning the investor becomes a shareholder and may benefit from dividends and capital appreciation. Bonds signify debt, meaning the investor is a creditor and earns fixed interest payments over time.
4. Clarify the incorrect options: Stocks are not exclusively issued by governments; they are primarily issued by corporations. Bonds are not exclusively issued by corporations; governments also issue bonds. Stocks do not guarantee fixed interest payments, and bonds do not provide dividends based on company profits.
5. Summarize the correct answer: The main difference is that a stock represents ownership in a company, while a bond represents a loan made to a company or government.