Question

A share of Citigroup stock represents:a.An IOU, or promise to pay, from Citigroup b.A right to require that Citigroup pays all profits as dividendsc.A risk-free investment vehicle in the long rund.A claim on Citigroup's assets that gives the purchaser a share of the corporationNow, compare one share of Citigroup's stock with one of its bonds. A share of Citigroup stock will be risky than a bond issued by Citigroup.

Answer 1

A share of Citigroup stock represents ownership in the firm, with returns potentially earned through dividends and capital gains. Stocks are riskier than bonds as they directly reflect the company's performance, offering both higher rewards and greater risks. Bonds provide a fixed return, making them more stable but with less profit potential.

Step-by-step explanation:

A share of Citigroup stock represents firm ownership. When individuals purchase stock, they become part-owners, or shareholders, of the corporation. Owning 100% of a company's stock equates to owning the entire company, but in large firms like Citigroup, no single shareholder typically has a majority stake. Instead, ownership is spread across many shareholders, each holding a proportionally small part of the company. Stocks are a way for firms to raise financial capital and can lead to returns through dividends and capital gains.

Comparing Citigroup's stock with its bonds, a share of stock is generally riskier than a bond issued by the company. Stockholders benefit when the company performs well but also bear the losses if the company's value decreases. In contrast, bondholders receive a fixed interest payment regardless of the company's performance, making bonds a more stable investment. However, bondholders have less potential for profit compared to stockholders, who may benefit from rising stock prices in addition to receiving dividends.