Name one type of equity security.

Name one type of equity security.

• A. Corporate bond
• B. Common stock
• C. Real estate investment trust
• D. Mutual fund

Answer: (B)

Common stock represents one type of equity security because it gives shareholders ownership in a corporation. When investors purchase common stock, they are essentially buying a small piece of the company, which entitles them to a share of the profits in the form of dividends and the potential for capital appreciation if the stock price increases. Shareholders have voting rights in corporate decisions, which further emphasizes their ownership stake. This distinguishes common stock from other options. Corporate bonds, for example, are debt securities, meaning they represent a loan made by an investor to a borrower, which is the corporation in this case. Real estate investment trusts (REITs) and mutual funds involve collections of various investments, but they are not strictly classified as equity securities themselves; rather, they can hold equity securities as part of their portfolio. Thus, common stock is the clear and precise answer in the context of equity securities.

Common stock represents one type of equity security because it gives shareholders ownership in a corporation. When investors purchase common stock, they are essentially buying a small piece of the company, which entitles them to a share of the profits in the form of dividends and the potential for capital appreciation if the stock price increases. Shareholders have voting rights in corporate decisions, which further emphasizes their ownership stake.

This distinguishes common stock from other options. Corporate bonds, for example, are debt securities, meaning they represent a loan made by an investor to a borrower, which is the corporation in this case. Real estate investment trusts (REITs) and mutual funds involve collections of various investments, but they are not strictly classified as equity securities themselves; rather, they can hold equity securities as part of their portfolio. Thus, common stock is the clear and precise answer in the context of equity securities.