Investment Vehicle Characteristics

Common stock typically carries voting rights and residual claims, while preferred stock generally pays a fixed dividend and ranks ahead of common in liquidation.

In a corporate liquidation, secured creditors are paid first, then unsecured and subordinated debt, then preferred and finally common stockholders.

American Depositary Receipts (ADRs) let U.S. investors hold foreign shares in dollars but still carry currency risk.

Warrants are long-term rights to buy stock at a set price, and rights offerings let existing shareholders buy shares, usually below market, to avoid dilution.

Bond prices move inversely to interest rates; longer duration and lower coupons increase price sensitivity to rate changes.

A premium bond has a yield to maturity below its coupon, while a discount bond has a yield to maturity above its coupon.

Current yield equals annual coupon divided by market price; yield to maturity also accounts for gain or loss as price converges to par.

Treasury interest is exempt from state and local tax but taxable federally; most municipal bond interest is exempt from federal tax.

Open-end mutual fund shares transact at net asset value using forward pricing, while closed-end funds and ETFs trade intraday at market prices.

A unit investment trust holds a fixed, unmanaged portfolio with a set termination date.

Money market funds seek a stable $1.00 net asset value with high liquidity but are not federally insured.

REITs must distribute at least 90% of taxable income to shareholders to maintain favorable pass-through tax treatment.

A call option is the right to buy and a put option is the right to sell at the strike price; futures contracts obligate both parties to transact.

A fixed annuity guarantees a stated rate with the insurer bearing investment risk, while a variable annuity's value fluctuates with separate account subaccounts, placing risk on the owner.

Hedge funds and direct participation programs are less liquid, less regulated, and generally limited to accredited or qualified investors.

Structured products and CMOs derive their value from reference assets or mortgage pools and carry issuer credit or prepayment risk.