Question

Identify the main sources of corporate funds and differentiate between stocks and bonds.

Short answer

Everyone has their own financial objectives. When deciding which investments to make, keep them in mind.

Step-by-step solution

Step 1;       Introduction

Stocks and bonds are two popular investing options. Stocks represent an ownership stake in a company. Bonds are debt instruments.

Companies can fund and expand their business in two ways. Let's take a look at what this means for you as an investor.

Step 2;          Stocks denote ownership

Stocks are basically corporate ownership shares. A firm sells a piece of itself in return for cash when it issues stock. Assume a company makes it past the startup stage and achieves success.

The proprietors want to expand their business, but they can't do it purely on the income generated by their operations. As a result, they seek more funding from the stock markets.

Step 3;         Bonds are debt instruments

A government, corporation, or other body in need of funds will take out a public market loan. The company will then pay interest to the investors who lent them the money.

Step 4;         Conclusion

To diversify their portfolios, many people invest in both stocks and bonds. Your time horizon, risk tolerance, and investment objectives all play a role in determining the best stock and bond mix for your portfolio. Stocks and bonds do not usually fluctuate at the same time.