Stocks vs. Bonds
This type of investment represents ownership in a company and a claim on its future profits.
What is a Stock?
This short series of letters, like AAPL or MSFT, is used to identify a company’s stock on an exchange.
Answer: What is a ticker symbol?
This is the amount printed on the bond that the issuer promises to repay at maturity, often 1,000 dollars.
Answer: What is par (face) value? OR "The Principle"
This type of risk is the chance that market interest rates will rise and cause existing bond prices to fall.
Answer: What is interest rate risk?
This is the overall system of exchanges and markets where investors buy and sell ownership shares of public companies.
Answer: What is the stock market?
What kind of account do you need in order to trade stocks?
What is a brokerage account?
This type of investment represents a loan you make to a company or government in exchange for interest payments.
What is a bond?
This number on a stock quote shows the current market cost of buying a single share.
Answer: What is the last (or current) price?
This bond term describes the fixed annual interest rate, as a percentage of par value, that determines the size of the coupon payments.
Answer: What is the coupon rate?
This type of risk is the chance that a bond issuer will fail to pay interest or repay the principal as promised.
Answer: What is default risk?
This measure of company size is calculated by multiplying the stock price by the number of shares and is used to label firms as large‑cap or small‑cap.
Answer: What is market capitalization (market cap)?
Walmart is an example of this kind of cap (AKA-chip)
What is a "large cap" stock or Blue Chip stock
This is the main way stock investors hope to earn money besides receiving dividends, when the share price rises above what they paid.
What is a capital gain?
This metric is calculated by multiplying a company’s share price by the total number of shares outstanding.
Answer: What is market capitalization (market cap)?
This is the date when a bond issuer must repay the principal (par value) to the bondholder.
Answer: What is the maturity date?
These bonds are issued by national or local governments and are often considered lower default risk than similar corporate bonds.
Answer: What are government bonds?
These stocks are usually from companies worth tens of billions of dollars, often more stable and sometimes paying steady dividends.
Answer: What are large‑cap stocks?
This is what it is called when a bond reaches it's term (and the original principle amount needs to be repaid to the bondholder)
What is "Maturity"
Between stocks and bonds, this one is generally expected to have higher long‑run return potential but with more ups and downs in price.
Answer: What are stocks?
This ratio compares a stock’s price to its earnings per share and is often used to judge how expensive or “valued” a stock is.
Answer: What is the price‑to‑earnings (P/E) ratio?
This is the name for the return a bond investor earns based on the bond’s annual interest and its current market price, and it moves opposite to bond prices.
Answer: What is yield?
These bonds are issued by companies and usually offer higher yields than government bonds to compensate for higher default risk.
Answer: What are corporate bonds?
These stocks are from smaller companies that may offer higher growth potential but also tend to have more price volatility and risk.
Answer: What are small‑cap stocks?
This is when the stock market increases really fast and risks falling equally as fast.
What is a "bubble"?
Between stocks and bonds, this one is typically used in portfolios to provide steadier interest income and lower price volatility than the other.
Answer: What are bonds?
This is what investors are measuring when they divide a stock’s annual dividend per share by its current share price and express the result as a percentage.
Answer: What is dividend yield?
This is the reason bond yields typically rise when bond prices fall: the same fixed coupon is being divided by this lower number.
Answer: What is the current market price of the bond?
Compared with owning a single bond, this type of investment spreads money across many bonds to reduce the impact if any one issuer defaults.
Answer: What is a bond fund (bond mutual fund or bond ETF)?
This is one main reason a company might issue new shares of stock instead of more bonds: it can raise money for growth without taking on required repayments of principal and interest.
Answer: What is to raise capital without creating new debt obligations?
This is a type of company that you cannot invest in even if you wanted to.
What is a private company?
Trivia: 2nd largest private company in America is located in Kansas. Koch Industries