CFA Level I · CFA Level I Exam · Equity Instrument Features
Compared with a company's creditors, its common shareholders are most likely to:
Common shareholders hold a residual claim on the company's assets and earnings, meaning they are paid only after creditors and preferred shareholders have been satisfied. This makes equity riskier than debt, which has fixed contractual payments and a set repayment date.
- Areceive a fixed return that is paid before any dividends
- Bhold a residual claim on assets and earnings after other claims are metCorrect
- Chave a legal right to repayment of principal on a set date
Explanation
Common equity is a residual claim: shareholders are paid only after creditors and preferred holders. Fixed returns and repayment on a set date are features of debt, not common equity.
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