Stocks and bonds are financial instruments for investors to obtain a return and for companies to raise capital. Put very simply, stocks offer an ownership stake in the company and bonds are akin to loans made to the company.
With the equity that stocks offer comes greater risk. The value of stocks corresponds to the value of the company and therefore, stock price fluctuates depending upon how the market values the company.
In contrast, bonds are loans offered at a fixed interest rate. When a company believes that it can raise capital cheaper by borrowing money from banks, institutional investors or individuals, they may choose to offer interest-paying corporate bonds. With bonds, an investor is promised a fixed return. While bonds are "safer" than stocks because of lower volatility, it should be noted that there is always a chance that company will be unable to repay bond-holders. In that sense, bonds are not "risk-free".
However, when a company declares bankruptcy, stockholders are the first to bear losses. Creditors (including bond-holders) are next.
Kind of Instrument
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest
In financial markets, stock capital raised by a corporation or joint-stock company through the issuance and distribution of shares
Bond holders are in essence lenders to the issuer
The stock holders own a part of the issuing company (have an equity stake)
Bonds markets, unlike stock or share markets, often do not have a centralized exchange or trading system
Stock or share markets, have a centralized exchange or trading system
Nominal yield, Current yield, Yield to maturity, Yield curve, Bond duration, Bond convexity
Gordon model, Dividend yield, Income per share, Book value, Earnings yield, Beta coefficient
Investors, Speculators, Institutional Investors
Market maker, Floor trader, Floor broker
Bonds are issued by public sectorauthorities, credit institutions, companies and supranational institutions
Stock are issued by corporation or joint-stock companies