Chapter 3: Equity Securities
This chapter is part of Function 3 (73% of the exam) and covers equity securities in depth, including common stock, preferred stock, rights, warrants, ADRs, and equity taxation.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 8 | Common Stock | Voting rights, dividends, stock splits, preemptive rights, market capitalization |
| 9 | Preferred Stock | Cumulative, convertible, callable, participating preferred; preference in liquidation |
| 10 | Rights, Warrants, and ADRs | Subscription rights, warrants, American Depositary Receipts, currency risk |
| 11 | Equity Tax Treatment | Capital gains, holding periods, wash sales, cost basis methods, dividend taxation |
Why This Chapter Matters
Equity securities are the foundation of most investment portfolios and a core part of the Series 7 exam. You need to understand how stocks work, the differences between common and preferred, how derivative equity products like rights and warrants function, and the tax implications of equity transactions.
Exam Strategy
Focus on:
- Common vs. preferred stock: Rights, risks, and features that distinguish them
- Stock splits and dividends: How they affect price, shares, and cost basis
- Convertible preferred: Conversion ratios, parity price calculations
- Tax treatment: Long-term vs. short-term capital gains, wash sale rule, cost basis methods