What distinguishes stocks from bonds in terms of ownership and potential return?

• A. Bonds give voting rights; stocks do not.
• B. Stocks represent ownership in a company and can provide dividends and capital gains; bonds are loans to issuers with fixed interest payments and return of principal at maturity.
• C. Stocks are loans to a company with fixed payments; bonds are ownership in a company with dividends.
• D. Stocks and bonds are the same except for tax.

Answer: (B)

Stocks represent ownership in a company, so your return comes from two main sources: possible dividends and the potential for the stock’s price to rise, giving you capital gains when you sell. As a part-owner, you share in the company’s profits and losses, but there’s no guarantee your returns will be steady—the value can swing with performance and market conditions.

Bonds are a loan to the issuer (like a company or government). In return, you receive fixed interest payments on a schedule and you get your principal back at the end of the term. This makes bond returns more predictable than stocks, but they are typically lower on average and subject to risks like default and interest-rate changes.

The other options either swap the ownership and debt roles or misstate the rights and return patterns (for example, suggesting bonds carry voting rights, or that stocks are loans with fixed payments). The core idea is that ownership comes with stocks and potential for dividends plus price growth, while bonds are debt with fixed payments and principal repayment.