Equity Securities: Common and Preferred Shares

Chapter 8 introduces the main equity claims that students will use throughout the rest of the course. It covers common shares, preferred shares, and the stock indexes used to summarize equity-market performance.

The chapter is most valuable when students compare rights and risk directly. Common and preferred shares both sit on the equity side of the balance sheet, but they respond very differently to earnings growth, dividend policy, distress, and market rates.

Exam Focus

• Distinguish common-share ownership rights from preferred-share income and priority features.
• Compare major preferred-share structures such as perpetual, retractable, floating-rate, and rate-reset issues.
• Understand what an index measures, how it is constructed, and why benchmark design matters in performance comparisons.

In this section

• Common Shares, Rights, and Equity Return
  What common shares represent, how shareholders earn return, with rights common shareholders have, and why common equity carries residual risk.
• Preferred Shares and Income-Oriented Equity
  How preferred shares differ from common shares and bonds, with preferred-share types matter most, and what risks drive suitability.
• Stock Indexes, Averages, and Benchmarks
  What stock indexes measure, how weighting methods differ, and why benchmark design changes equity performance interpretation.