Ace the 2026 CFA Level 1 – Unlock Your Financial Future with Style!

Common stock is a type of equity security that represents ownership in a corporation. One of its defining characteristics is that it provides shareholders with voting rights in corporate decisions. This means that common shareholders typically have the ability to vote on critical issues such as the election of the board of directors, corporate policies, and significant transactions that may affect the company's operations.

Voting rights empower shareholders to have a say in the governance of the company, which is a fundamental aspect of owning common stock. This characteristic distinguishes common stockholders from preferred stockholders, who often do not have voting rights.

The other options do not accurately represent characteristics of common stock. Unlike bonds or preferred stocks, common stock does not come with a fixed dividend payment; dividends can vary based on the company's earnings and decisions made by the board of directors. Furthermore, common stock is not guaranteed to increase in value; it can fluctuate based on market conditions, company performance, and other factors. Lastly, in a liquidation scenario, common stockholders have lower priority than creditors and preferred stockholders, meaning they are not entitled to payment until all debts and obligations have been settled.