Discuss at least three differences between investing in stocks and investing in bonds

What will be an ideal response?

Answer: Students may discuss any of the following:
Bonds provide a predictable stream of income that will not change until the bonds mature, while stock dividends can be reduced or even eliminated.
Corporations have a legal obligation to pay interest and principle, but there is no legal obligation to pay dividends.
Stocks can lose value permanently, but the value of bonds will always rise (or fall) to face value when they mature unless the corporation fails and the bonds default.
Because bond prices depend primarily on interest rates, they move within a much narrower range and change less quickly than stock prices.
On the negative side, bonds values do not share in the growth of a company and over the long term, average returns on bonds are lower than on stocks. Under present tax laws, bond interest is taxed as ordinary income while stock dividends are taxed at a lower rate.