A “Stock” is a capital market instrument that represents an ownership stake in a company. They are also called “Shares” and “Equity”. Stocks are issued to the public via Initial Public Offerings or Public Offers or Rights Offerings (for existing shareholders) as a means to raise capital, and in return offer a stake in the issuing company. Stockholders can then go on to share in the profits of these companies if any when dividends (portions of profits made) are paid. These stocks can also be bought and sold on a recognized stock exchange at market-determined prices. Examples of recognized stock exchanges in Nigeria where stocks are traded are the Nigerian Stock Exchange (NSE) and the National Association of Securities Dealers (NASD) OTC Securities Exchange.
A bond is a long-term, capital market “Debt” instrument. It is also commonly referred to as a fixed income instrument due to the fact that a bond often (but not always) promises the holder a fixed, steady return over its lifetime (tenor). The lifetime of a bond usually ranges from 2 to 30 years. Bonds are usually issued by capital seekers (a borrower) who pledge to pay a set amount of money (“the Coupon”), as interest, at specific intervals for a specified period of time (the maturity date); upon which the principal is returned. Common issuers of bonds in Nigeria are the State and Federal Governments and large corporate bodies.
A treasury bill is a short-term, money market “Debt” instrument with a tenor of less than 1 year. Commonly issued tenors in Nigeria are 91 days, 182 days and 364 days. They are usually issued and backed by the full faith and credit of Federal Governments. In Nigeria, treasury bills are issued twice every month and three times in the month ending each quarter of the year.
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