There is a strong similarity between bonds and stocks because of the nature of the cash flows. Both bonds and stocks offer assurance of regular payments through either dividend or interest, the final sale of stock is similar to the final return of a bond's principal.

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Bonds typically offer fixed interest payments and return of principal at maturity, while stocks represent ownership in a company and dividends (if paid) can vary. The value of stocks can fluctuate significantly, and there is no guarantee of dividends or return of principal as with bonds.

There Is a Strong Similarity Between Bonds and Stocks Because