4.4 Stocks and Bonds

Notes

Investing means putting money into assets that you hope will grow.

• A stock is a share of ownership in a company. Its price can rise or fall, and some stocks pay dividends.
• A bond is a loan to a company or government that pays interest and returns the face value at maturity.
• Stocks usually have higher possible returns and higher risk. Bonds usually have lower risk and lower returns, but they are not risk-free.
• Example: 10 shares at $50 cost $500. If the price rises to $58, they are worth $580, a gain of $80.
• Example: a $1,000 bond with a 5% rate pays $1000 \times 0.05 = 50$, so $50 in interest each year.