Exam Weight: ~5 questions (4% of exam)
Equity securities represent ownership in a corporation. Unlike bondholders, who are creditors, stockholders are owners who participate in the company's success through dividends and capital appreciation. This unit covers the equity securities tested on the exam: common stock (domestic, foreign, and American Depositary Receipts) and preferred stock (standard and its convertible, callable, and floating-rate varieties).
Why do you need to know this? Equity securities form the foundation of most client portfolios. Knowing their characteristics helps you recommend investments that fit a client's risk tolerance and growth objectives. The exam tests your ability to distinguish between equity types and their rights and restrictions.