Final answer:
Bonds can be issued by both corporations and government entities, while stock is only issued by corporations. Corporations use these tools to access financial capital for various purposes.
Step-by-step explanation:
The question seeks to clarify who can issue bonds and stock. Bonds may be issued by both corporations and various levels of government, such as municipal bonds by cities, state bonds by U.S. states, and Treasury bonds by the federal government. On the other hand, stock is exclusively issued by corporations. When accessing financial capital, corporations can choose between borrowing from a bank, issuing bonds, or issuing stock, each with its own advantages and trade-offs.
A bond is essentially a debt instrument where an investor lends money to the company in return for periodic interest payments and the return of the principal amount at maturity. On the other hand, a share of stock represents ownership in the company and provides the shareholder with certain rights and privileges, such as voting rights and the potential to receive dividends.
When a company issues bonds, its obligation is to make regular interest payments to bondholders as specified in the bond agreement and repay the principal amount at maturity. The company's assets often serve as collateral to secure the bondholders' investment. Failure to make interest payments or repay the principal can result in default and legal consequences.
When a company issues stock, its obligation is to provide the shareholders with certain rights, such as the right to vote on company matters and the right to receive dividends, if declared by the company's board of directors. Additionally, the company has a fiduciary duty to act in the best interests of its shareholders and to provide them with accurate and transparent financial information.