Final answer:
Stocks represent ownership in a corporation and offer potential for dividends and capital gains but come with higher risk, whereas bonds, which can be issued by corporations or government entities, provide fixed interest payments and are considered safer but have lower potential returns. The correct option stating the difference is that bonds may be issued by corporations or government.
Step-by-step explanation:
The difference between stocks and bonds is that bonds may be issued by corporations or various levels of government, which includes municipal bonds by cities, state bonds by U.S. states, and Treasury bonds by the federal government through the U.S. Department of the Treasury. Stocks, on the other hand, represent ownership in a company and are issued by corporations only.
Stockholders potentially gain dividends and capital gains, but with the risk that the value could also decline. Bondholders are promised a fixed rate of interest over the lifespan of the bond and the return of principal; they do not own a part of the company.
Investing in the stock market can provide opportunities for growth through dividends and capital appreciation, although it comes with higher risks. Bonds are generally considered a safer investment than stocks because they offer fixed interest payments, though they usually have lower potential returns. Governments and corporations issue bonds to raise capital for various projects, operations, or to manage debt.
The mentioned correct option in final answer to the question of the difference between stocks and bonds is that a. bonds may be issued by corporations or government.