Your rich uncle, Ebenezer, dies and leaves you $10 million. You plan to buy $10 million worth of common stock in Microsoft, but your accountant thinks you should buy $10 million worth of Microsoft bonds. a . What is the difference between Microsoft's common stock and its bonds? b. What is the advantage of each? c. What is the disadvantage of each?

a . If you own a share of stock, then you are an owner of the company, but if you own a bond you are a
creditor of the company. A share of stock represents ownership in the company while a bond is a loan
agreement whereby the company borrows a sum from the bondholder and agrees to repay this sum
with interest at maturity.
b. The advantage of owning stock is that you will share in any profits that the firm earns. The advantage
of owning a bond is that you have first claim on the corporation's profits; bonds are safer investments
than stocks.
c. The disadvantage of owning stock is that the value of the stock can fall below the price you paid for it;
stocks are riskier investments than bonds. The disadvantage of owning a bond is that you don't share in
any profits that the firm earns.