CFA Level I · CFA Level I Exam · Equity Instrument Features
Compared with a company's debt holders, its common shareholders are most likely to:
Common shareholders hold a residual claim on the company's assets and earnings. They are paid only after creditors and preferred shareholders, so they bear the most risk, while debt holders have fixed contractual claims and priority in liquidation.
- Ahave a residual claim on assets and earningsCorrect
- Bhold a fixed claim to interest payments
- Creceive priority in liquidation proceeds
Explanation
Common shareholders are paid only after creditors and preferred shareholders, so their claim is residual. Debt holders have fixed contractual claims and priority in liquidation, which is why the other two options describe creditors rather than common equity.
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