A bond is a financial contract through which a borrower agrees to repay the amount that it borrowed. A bond

specifies an amount that one will borrow, the amounts that one will repay over time based on the interest rate

when the bond is issued, and the time until repayment. Corporate bonds are issued by firms; municipal bonds
are issued by cities, state bonds by U.S. states, and Treasury bonds by the federal government through the U.S.

Department of the Treasury.

Stock represents firm ownership. A company's stock is divided into shares. A firm receives financial capital

when it sells stock to the public. We call a company’s first stock sale to the public the initial public offering

(IPO). However, a firm does not receive any funds when one shareholder sells stock in the firm to another

investor. One receives the rate of return on stock in two forms: dividends and capital gains.
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