Year 1 · Foundations · Markets & Instruments
Stocks, Bonds, ETFs & Funds
Learn what investors actually own, where returns come from, how stocks and bonds differ, how funds package exposures, and how prices connect to cash flows, risk and interest rates.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Explain the economic and legal difference between equity ownership and debt claims.
02
Calculate market capitalization, simple stock total return, dividend yield and bond coupon cash flows.
03
Explain why fixed-rate bond prices generally move inversely to market yields.
04
Distinguish ETFs, mutual funds, index funds and actively managed funds.
05
Compare stocks, bonds and diversified funds by claim, return source, risk, liquidity and role in a portfolio.
06
Recognize common beginner errors such as confusing stock price with company size or coupon with bond yield.
CONCEPT MAPFrom your cash to an economic exposure
Equity means ownership. Debt means lending.
CORE FACTS · SAME IN EVERY MODE
A common stock represents a residual ownership interest in a company; a bond is a contractual debt claim on an issuer.
Bondholders are promised contractual payments subject to the issuer's ability to pay; common shareholders are not promised a fixed return.
In a liquidation, creditors generally rank ahead of common equity holders; common equity is the residual claim.
Higher priority does not mean risk-free: bondholders still face interest-rate, credit, liquidity and sometimes call or reinvestment risk.
BeginnerTeaching style changes, knowledge does not.
Buying a stock is like owning a tiny slice of a business. If the business becomes much more valuable, your slice can become more valuable too, but you are last in line after creditors if the company fails. Buying a bond is different: you are lending money under a contract that specifies when interest and principal should be paid.
COMPARISON
Equity vs debt at a glance
| Feature | Common stock | Bond |
|---|---|---|
| Economic claim | Ownership / residual claim | Contractual debt claim |
| Cash flows | Dividends are discretionary for common equity | Coupons and principal defined by contract |
| Liquidation priority | Usually last | Ahead of common equity |
| Upside | Not contractually capped | Usually more limited by promised cash flows |
PROFESSIONAL VOCABULARYResidual claim / créance résiduelle Seniority / séniorité / seniority
A claim on what remains after higher-priority obligations are satisfied.
The order in which claims are paid when a borrower is restructured or liquidated.