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What is share and bonds ?

Shares and bonds are two common types of financial instruments that companies use to raise capital.

1. **Shares (Stocks):**

- Shares represent ownership in a company. When you buy shares of a company, you become a shareholder and own a portion of that company.

- Companies issue shares to raise capital for various purposes, such as expansion, research, or debt repayment.

- There are two main types of shares: common shares and preferred shares. Common shareholders typically have voting rights in company decisions, while preferred shareholders usually have a fixed dividend but may not have voting rights.

- Example: If you buy 100 shares of Company ABC, and the company has a total of 1,000 shares outstanding, you own 10% of the company.

2. **Bonds:**

- Bonds are debt securities that companies issue to raise funds. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.

- Bonds have a fixed interest rate, known as the coupon rate, and a specified maturity date when the principal is repaid.

- Unlike stocks, bondholders don't own a stake in the company; they are creditors and have a claim on the company's assets in case of bankruptcy.

- Example: Company XYZ issues a bond with a face value of $1,000, a coupon rate of 5%, and a maturity of 10 years. If you buy this bond, you will receive $50 per year in interest (5% of $1,000), and after 10 years, you will get back the $1,000 face value.

In summary, shares represent ownership in a company with the potential for capital appreciation, while bonds are debt instruments that pay periodic interest and return the principal at maturity. Both play crucial roles in corporate finance and investment portfolios, offering different risk and return profiles.

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