At the other end of the transaction, buying a stock is an investment for the buyer, as he anticipates a rise in the value of the stock over time. He may or may not keep the stock in perpetuity...
One tenet of business is that for it to survive, it must grow. This requires investment. However, investment requires a lot of money which might not be with the company. Money can then be raised from the market through the issuance of Stocks and Bonds.
“A stock is the capital raised by a company or corporation through the issuance of a share.” The shareholder is any person or entities that holds one or more share of the company, and are thus part owners; the aggregate value of all such shares with all entities equaling the market capitalization of the company. The history of Stock Capital is very old, dating back to the 13th century copper-mining enterprises, and later joint-stock ship-building enterprises in the Netherlands. It became a common feature of raising money thereafter. At the other end of the transaction, buying a stock is an investment for the buyer, as he anticipates a rise in the value of the stock over time. He may or may not keep the stock in perpetuity, and may decide to dispose of the stock capital at any later date either to earn profit (if the value of the stock goes up), or to cut back on losses (if the value of stock goes down). Stocks are risky ventures, usually requiring deep knowledge of the ‘market’, and the expert advice of stockbrokers and others for sensible investment.
“Bonds, on the other hand, are debt security, in which the issuer of bonds owes the holder a debt and is obliged to repay the principal and interest.” Bonds and stocks are both securities, but the difference between them is that stock holders are part owners of the issuing company (or have an equity stake), whereas bond holders are lenders to the issuer. Also bonds have a definite lifespan, whereas stocks may be held indefinitely. Bonds are traded mostly by financial institutions like pension funds, insurance companies and banks.
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