{"id":1919,"date":"2019-06-15T17:35:00","date_gmt":"2019-06-15T17:35:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1919"},"modified":"2026-01-05T08:41:28","modified_gmt":"2026-01-05T08:41:28","slug":"types-equity-securities","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/","title":{"rendered":"Types of Equity Securities"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Overview of Equity Securities (2025 Level I CFA\u00ae Exam \u2013 Equity \u2013 Module 4)\",\n  \"description\": \"This video lesson covers equity securities, including their types, ownership characteristics, and voting rights. It compares public and private equities, discusses investing in non-domestic equities, and explores their risk-return profiles. The lesson also explains equity\u2019s role in financing company assets, contrasts market and book values, and examines cost of equity versus return expectations.\",\n  \"uploadDate\": \"2022-05-11T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/dzzqUd0SqtQ\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=dzzqUd0SqtQ\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/dzzqUd0SqtQ\",\n  \"duration\": \"PT36M43S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Reason for choosing preference shares over common shares\",\n    \"text\": \"What is the most likely reason for an investor to choose a company\u2019s preference shares over its common shares?\\n\\nA. The preference shares offer increased voting rights.\\n\\nB. The preference shares usually have a higher dividend yield than the common shares.\\n\\nC. The preference shares give the investor more exposure to the company\u2019s upside potential.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"B. The preference shares usually have a higher dividend yield than the common shares.\\n\\nPreference shares typically offer higher dividend yields to compensate investors for the lack of voting rights and limited participation in the company\u2019s upside. This makes them attractive to income-focused investors.\\n\\nA is incorrect because preference shares generally do not carry voting rights.\\n\\nC is incorrect because common shares provide greater upside potential, even compared with participating preference shares.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/dzzqUd0SqtQ?si=dokruuIDxv1kSzBm\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<p>Unlike debt securities, equity securities do no impose an obligation on the issuer to repay the amount financed. Instead, shareholders act as owners of a company with a claim on the company\u2019s net assets and expect that management will act in the shareholders\u2019 best interests. Equities can be split into two main categories: common securities and preference securities.<\/p>\n<h2><strong>Common Shares<\/strong><\/h2>\n<p>Common shares represent an ownership interest in a company. Similar to preferred shareholders, common shareholders have a claim to the company\u2019s net assets in the event of a liquidation. Unlike preferred shareholders, however, common shareholders share in the company&#8217;s operating performance and participate in the governance process through voting rights. Since it is often not feasible for common shareholders to attend shareholder meetings in person, they can designate another party to vote for them (vote by proxy). Statutory dictates that each share represents one vote, while cumulative voting is often used to allow smaller shareholders to vote multiple times for a single candidate with each share.<\/p>\n<p>A company can issue multiple common shares with different voting rights and\/or other ownership rights. For example, callable common shares give the issuing company the option of buying back the shares at a certain price (typically done when market price rises above strike price), and putable common shares give investors the option of selling back to the company at a certain price (typically when the market price drops below strike price).<\/p>\n<h2><strong>Preference Shares<\/strong><\/h2>\n<p>Preference shares have priority to common shares with respect to the\u00a0payment of dividends and claim on net assets upon liquidation\u00a0but do not share in the company\u2019s operating performance and do not typically have voting rights. While preference shares differ from debt securities in that the issuing company is not obligated to pay dividends, preference share dividends are often fixed like interest payments on debt securities and generally yield more than dividends paid on common shares.<\/p>\n<p>With cumulative preference shares, the accrued preference dividend payments must be paid before any dividends go out to common shareholders. With participating preference shares, shareholders receive an additional dividend if the company\u2019s profits exceed a pre-specified level. Preference shares may also be convertible, meaning they can be converted into common shares at a certain ratio determined at issuance.<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>What is the most likely reason for an investor to choose a company\u2019s preference shares over its common shares?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">The preference shares offer increased voting rights.<\/li>\n<li data-tadv-p=\"keep\">The preference shares usually have a higher dividend yield than the common shares.<\/li>\n<li data-tadv-p=\"keep\">The preference shares give the investor more exposure to the company\u2019s upside potential.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>The preference shares usually have a higher dividend yield than the common shares to make up for the fact that they don\u2019t offer voting rights.<\/p>\n<p><strong>A is incorrect.<\/strong> Preference shares usually do not have voting rights.<\/p>\n<p><strong>C is incorrect.<\/strong> Since even participating preference shares offer limited upside potential, common shares should offer investors more exposure on the upside.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Unlike debt securities, equity securities do no impose an obligation on the issuer to repay the amount financed. Instead, shareholders act as owners of a company with a claim on the company\u2019s net assets and expect that management will act&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-1919","post","type-post","status-publish","format-standard","hentry","category-equity","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Types of Equity Securities | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Types of Equity Securities | CFA Level 1\" \/>\n<meta property=\"og:description\" content=\"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-06-15T17:35:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-01-05T08:41:28+00:00\" \/>\n<meta name=\"author\" content=\"Simon\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Simon\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\"},\"author\":{\"name\":\"Simon\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"headline\":\"Types of Equity Securities\",\"datePublished\":\"2019-06-15T17:35:00+00:00\",\"dateModified\":\"2026-01-05T08:41:28+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\"},\"wordCount\":504,\"articleSection\":[\"Equity\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\",\"name\":\"Types of Equity Securities | CFA Level 1\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-06-15T17:35:00+00:00\",\"dateModified\":\"2026-01-05T08:41:28+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"description\":\"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Types of Equity Securities\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\",\"name\":\"Simon\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"contentUrl\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"caption\":\"Simon\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/dzzqUd0SqtQ\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2204\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-06-15T17:35:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Types of Equity Securities | CFA Level 1","description":"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/","og_locale":"en_US","og_type":"article","og_title":"Types of Equity Securities | CFA Level 1","og_description":"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-06-15T17:35:00+00:00","article_modified_time":"2026-01-05T08:41:28+00:00","author":"Simon","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Simon","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/"},"author":{"name":"Simon","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"headline":"Types of Equity Securities","datePublished":"2019-06-15T17:35:00+00:00","dateModified":"2026-01-05T08:41:28+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/"},"wordCount":504,"articleSection":["Equity"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/","name":"Types of Equity Securities | CFA Level 1","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-06-15T17:35:00+00:00","dateModified":"2026-01-05T08:41:28+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"description":"Explore different types of equity securities, including common and preferred shares, and their roles in investment portfolios.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/types-equity-securities\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Types of Equity Securities"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687","name":"Simon","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","contentUrl":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","caption":"Simon"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/dzzqUd0SqtQ","og_video_type":"text\/html","og_video_duration":"2204","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-06-15T17:35:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1919","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=1919"}],"version-history":[{"count":17,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1919\/revisions"}],"predecessor-version":[{"id":57302,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1919\/revisions\/57302"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=1919"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=1919"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=1919"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}