Stocks vs Bonds

Bonds are loans, or IOUs, that represent debt that the government or a corporation must repay to an investor. The bond holder has NO OWNERSHIP of the company

• First: if a corporation issue and then sells a bond, 
• Is it a liability or an asset for the corporation? Liability
• Is it an asset or a liability for the buyer? Asset

If that corporation issues a 10k bond with a 10 yr term and a 5% interest.

• If the nominal interest rate falls to 3% what happens to the value of the bond? increases
• If the nominal interest rate rises to 8%, what happens to the value of the bond? Decreases

But now you need money.

To get more money, you sell half of your company for $50 to your brother Tom. 

Stock owners can earn a profit in two ways: 

• Dividends, which are portions of a corporation's profits, are paid our to stockholders
• The higher the corporate profit, the higher the dividends
• A capital gain is earned when a stockholder sells stock more than he or she paid for it. 
• A stockholder that sells stock at a lower price than the purchase price suffers a capital loss. 

Federal Reserve Banks= The Feds= central bank

2 goals: 

• maintain economy
• full employment