CFA Level I · CFA Level I Exam · Equity Instrument Features
An investor compares the total risk of a company's securities. Which ranking of risk, from highest to lowest, is most likely?
Common shares carry the highest risk because they are the residual claim, preference shares are in between because they rank ahead of common but behind debt, and senior bonds are the least risky because they have priority and contractual payments.
- APreference shares, common shares, senior bonds
- BSenior bonds, preference shares, common shares
- CCommon shares, preference shares, senior bondsCorrect
Explanation
Common shares rank last in claims and have variable returns, so they are riskiest. Preference shares rank ahead of common but behind debt. Senior bonds have priority and contractual payments, so they are the least risky.
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