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Common Stock Definition and Quiz

Many of the advancements in portfolio theory surround common stocks, due to their liquidity and readily-available pricing history, but also hold true for other forms of equity and debt ownership.
  1. Define - Define Common Stock.
  2. Context - Use it in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 17, 2021
Many owners of common stocks don't realize they stand behind debt holders if a company goes bankrupt. Keep reading to learn more.

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Common Stock definition for investments


Common stock is one of several types of equity investments representing ownership of a business. In the event of bankruptcy, equity securities are given lower priority than debt holders.

Synonyms: stock, equity, voting share, ordinary share

For context, it's wise to back up and discuss a basic accounting concept. The common stock owner is the same as an equity owner, who is entitled to all profits after the obligations to creditors are paid. So bondholders, vendors and employees all have higher priority than equity holders. In the event of a bankruptcy, the common stock shareholder's value is essentially erased and through bankruptcy proceedings the net assets of the company are split among creditors.

Voting rights are typically 1 vote for 1 share, but in some cases companies have multiple classes of shares with different voting entitlements.

In a Sentence

Doc:  Especially in the media sector, some classes of common stock have more voting power.
Lia:  So much for a classless society.


Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.

Videos can also be accessed from the YouTube Channel.

Video Script

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Click box for answer.

Most of the return on common stocks comes in the form of ____. | Capital Appreciation or Dividends or Stock Splits?

Capital Appreciation

A reason there are multiple share classes is to give some voters more voting power and control than others. | True or False?


Questions or Comments?

Still unclear on the term Common Stock? Check out the Quant 101 Series which includes 27 videos with a deep-dive in Excel for financial modeling.

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