Equity SecuritiesThese notes are in addition to the textbook material and are among the topicsdiscussed in class.This is NOTa complete list of what we covered and is NOTa substitute for you takingnotes in class and reading further sources on these topics. Some of this informationmay be basic to you, however, it will be on any securities licensing test, the CFP test andour tests.What is a Security? In the simplest terms, a security is an investment that represents either an ownership stake or debt stake in a company. An investor becomes a part owner in a company by buying shares of the companvs stock. A debt security is usually acquired by buying a company's bonds. A debt investment is a loanto a company in exchange for interest income and the promise to repay the loan at a future date. It does not confer ownership. Stock represents equity or ownership in a company, and bonds are a loan to the company (a debt). A company discloses the composition of its total capitalization —equity and debt— by publishing a balance sheet. Common Stock Holders Rights —1.The right to vote2.Preemptive Rights3.The right to inspect the books of the company4.The right to sue for wrongful acts5.The right to transfer ownership6.The right to share in the profits of the company (dividends)7.Residual Claims on AssetsCommon Stock / Preferred Stock — When speaking of stock, people generallyrefer to common stock. Preferred stock represents equity ownership in acorporation but it usually does not have the same voting rights or appreciationpotential as common stock. Preferred stock normally pays a fixed, semi-annualdividend and has priority claims over common stock.Common Stock can be classified as:1.Authorized (refers to the specific number of shares a company hasauthorized to issue or sell)2.Issued (has been authorized and distributed to investors)3.Outstanding (refers to any shares a company has issued but has notrepurchased-that is, it is investor owned)
4.Treasury (is the stock a corporation has issued and subsequentlyrepurchased from the investors. By buying back its own shares in the openmarket, the corporation reduces the number shares outstanding. Treasurystock does NOT carry the rights of outstanding common shares)Common Stock Values —1.