Your Questions About Stocks And Bonds

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Steven asks…

Explain the differences between stocks, bonds, and options.?

can sumone help me with this, atleast a page long!
thank you so much..

financi4 answers:

When a company starts, it needs to be funded. It has various ways to do that. In a simple division there is debt and equity. That is the money that the original owners put in, and money that banks or other people lend to them. The money that people lend to them is expected to be paid back with a certain interest rate. Some of those loans are for short terms things–paying employees, financing inventories, and some are longer term–buying machines, but all get paid back with interest. But that is it. The most that gets paid back is all of the loan, and all of the interest. Then, what the original owners (and their partners) put in, get everything else (if there is anything else).

When companies get bigger, they will start to tap public markets. So the loans, become the bonds. So the bonds pay interest rates, and get the loan (principal) back. But that’s all. And there are usually short term ones for the short term uses and long term ones for the long term uses.

So the money that the original owners put in that was the equity that got whatever the debt didn’t get is what becomes the stocks. That is the “last claim on profits”.

Options are derivative instruments. They give you the right to buy or sell a stock at a certain price at a certain date. You pay a certain premium for that. The price is called the strike price. The right to buy is called a call option, the right to sell is called a put option. I could go into a million issues about options, but it is hard to know what would really be helpful. If there is something further that could be helpful, you are free to contact me.

Paul asks…

How do I learn about stocks and bonds?

I would like to know how to invest a small windfall safely.

financi4 answers:

Try younginvestors.com

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