“Common stock” and evaluate its key characteristics.
Summarize the term “common stock” and evaluate its key characteristics. Determine the two major markets for the sale of stock, as well as the concepts of “bull market” and “bear market.”
Sample Answer
Common stock represents ownership in a corporation. As a shareholder, you have a claim on the company’s assets and earnings. This ownership typically comes with voting rights, allowing you to participate in key corporate decisions like electing board members.
Key Characteristics of Common Stock:
- Ownership: Represents ownership in a company.
- Voting Rights: Shareholders can vote on important company matters.
- Dividends: Companies may distribute a portion of their profits to shareholders in the form of dividends.
- Residual Claim: In the event of liquidation, common stockholders have a residual claim on the company’s assets after creditors and preferred stockholders have been paid.