NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A portfolio manager is evaluating a client's holdings and notes a significant allocation to a security that represents ownership in a company, provides voting rights, and has the potential for capital appreciation, but does not guarantee dividend payments. Which type of security is this client primarily holding?
- ATreasury Bill
- BPreferred Stock
- CCorporate Bond
- DCommon Stock
Show answer & explanationAnswer & explanation
Correct answer: D. Common Stock
Common stock represents ownership, provides voting rights, and has potential for capital appreciation without guaranteed dividends, matching the description.
Why the other options are wrong
- A. A Treasury bill is a short-term debt instrument issued by the U.S. government, not an ownership stake in a company.
- B. Preferred stock typically does not have voting rights and usually offers fixed dividend payments, which contradicts the 'no guaranteed dividends' aspect.
- C. A corporate bond is a debt instrument, not an ownership stake, and does not provide voting rights.
Common Stock
A security that represents ownership in a corporation, giving the holder a claim on a portion of the company's assets and earnings, and typically voting rights.
- Represents ownership in a company
- Provides voting rights
- Potential for capital appreciation and dividends (not guaranteed)
Memory trick: Common Stock gives you Common control and Common gains.