SIE Equities Basics
Updated October 27, 2026
Equity securities represent ownership in a company. On the SIE you need to know how common and preferred stock differ, what shareholders are entitled to, and how rights, warrants and ADRs work. Here’s a summary, followed by free practice questions.
Common stock
Common stockholders own part of the company. They usually have:
- Voting rights, such as electing the board of directors.
- The right to dividends if the board declares them. Dividends aren’t guaranteed.
- Limited liability: they can lose what they invested, but no more.
- The last claim on assets if the company is liquidated.
Preferred stock
Preferred stock usually pays a fixed dividend and has priority over common stock for dividends and in liquidation. It usually has no voting rights. Its price is sensitive to interest rates, much like a bond’s.
| Type | Feature |
|---|---|
| Cumulative | Missed dividends must be paid before common stockholders get any |
| Convertible | Can be exchanged for a set number of common shares |
| Callable | The issuer can buy it back at a set price |
Rights and warrants
| Rights | Warrants | |
|---|---|---|
| Who gets them | Existing shareholders, to keep their percentage ownership | Often attached to bonds or preferred stock as a “sweetener” |
| Price to buy stock | Below the current market price | Above the market price when issued |
| How long they last | Short term, usually weeks | Long term, often years |
ADRs
American Depositary Receipts let U.S. investors own shares of foreign companies. They trade in U.S. dollars on U.S. markets, but they still carry currency risk, because the underlying shares are valued in a foreign currency.
Free SIE equities practice questions
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Which right do common stockholders usually have that preferred stockholders usually don't?Answer: DCommon stockholders usually vote, for example to elect directors. Preferred stockholders usually don't, but they get dividend and liquidation priority.
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A company skipped its preferred dividend last year. Which preferred stock must receive the missed dividend before common stockholders get anything?Answer: ACumulative preferred stock accumulates missed dividends, which must be paid before any common dividend.
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Rights offerings let existing shareholders:Answer: BRights let current shareholders buy new shares, usually below market, so they can keep their proportional ownership.
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Which risk does a U.S. investor in an ADR face that a buyer of a U.S. company's stock doesn't?Answer: CAn ADR represents shares of a foreign company, so changes in the exchange rate affect its value. That's currency risk.
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In a liquidation, who has the last claim on a company's assets?Answer: DCommon stockholders are last in line, after creditors, bondholders and preferred stockholders.
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A warrant usually allows its holder to buy stock:Answer: AWarrants are long-term and usually set the purchase price above the market price when they're issued. Rights are short-term and below market.
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An investor owns 100 shares at $60. After a 2-for-1 stock split, the investor owns:Answer: BA 2-for-1 split doubles the shares and halves the price, so the total value stays $6,000 (200 × $30).
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Treasury stock is stock that a company has:Answer: DTreasury stock was issued and then repurchased by the company. It has no voting rights and receives no dividends while the company holds it.
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Preemptive rights give existing common shareholders the right to:Answer: APreemptive rights let existing shareholders keep their proportionate ownership when the company issues new shares, usually through a rights offering.
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Convertible preferred stock can be exchanged for:Answer: BConvertible preferred can be exchanged for a fixed number of common shares, giving the holder some of the upside of the common stock.
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A company has 10 million shares outstanding trading at $25. What is its market capitalization?Answer: CMarket cap = shares outstanding × price = 10,000,000 × $25 = $250 million.
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With regular-way settlement of T+1, how does a stock's ex-dividend date usually relate to the record date?Answer: CSince U.S. settlement moved to T+1 in May 2024, the ex-dividend date is generally the same as the record date. A buyer on or after the ex-date doesn't get the dividend.
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Which risk is most associated with owning common stock?Answer: DCommon stock has no promised payments, so its main risk is market risk: the share price can drop. Default and call risk are mainly bond risks.
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Which statement about a stock's par value is generally true?Answer: AFor common stock, par value is mainly an accounting figure and has little to do with market price. For preferred stock, par often sets the dividend amount.
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