Stocks and Bonds Quiz

Investment Types

• Stocks (Shares of ownership in a company)
• Bonds (Loans to a company or government)

Stock Types

• Common stock: Most prevalent type, represents ownership in a company and provides voting rights.
• Preferred stock: Pays a fixed dividend, but usually doesn't come with voting rights.

Dividend Yield Calculation

• Dividend yield is calculated by dividing the annual dividend per share by the stock's current market price.

Bonds

• Bonds represent loans made to companies or governments.
• Investors receive regular interest payments and principal repayment at maturity.

Bond Maturity and Interest Rates

• Inverse Relationship: Longer maturity bonds typically have higher interest rates.
• Longer maturities mean investors are exposed to more risk, so higher interest rates compensate them for the increased uncertainty.

Company Stability and Bond Interest Rates

• Inverse Relationship: More stable companies often issue bonds with lower interest rates.
• Investors consider stable companies less risky, so they're willing to accept lower returns.

Inflation and Investment Returns

• Inflation erodes purchasing power: If inflation increases, the real return on your investments may diminish.
• Higher inflation rates often result in higher interest rates, which can affect investment returns.