Investment Vehicle Characteristics
Equity
Common stock carries a residual claim, voting power, and preemptive rights. Preferred stock is legally equity but trades like credit - fixed dividend, seniority to common, call features, and rate sensitivity. Rights are short-dated with a subscription price below market; warrants are long-dated with an exercise price typically above market. ADRs are dollar-denominated claims on foreign shares.
Fixed income
Price is driven by coupon, maturity, credit quality, and embedded features. Duration measures price sensitivity to a 1 percent rate change: a bond with duration 7 falls roughly 7 percent when yields rise 1 percent. TIPS adjust principal with CPI, defending against inflation while still carrying real-rate risk. Municipal questions hinge on general obligation (taxing power) versus revenue (project cash flow) pledges and on tax-equivalent yield.
Packaged products and derivatives
Open-end funds issue and redeem at NAV once daily; closed-end funds trade intraday at premiums or discounts to NAV; ETFs trade intraday with creation/redemption keeping price near NAV; UITs are fixed, unmanaged, and terminate on a set date. For options, value equals intrinsic plus time value; the buyer's maximum loss is the premium, while the uncovered writer's loss is uncapped.
Traps
Closed-end fund premium/discount, ETF versus mutual fund pricing, and 'preferred stock is debt' distractors appear constantly. Convertibles have both a parity floor and an investment value floor - questions ask which binds. A bond at a premium has YTM below current yield, which is below the coupon.
Worked example
A convertible with a 20:1 ratio and stock at $52 has conversion parity of $1,040. Priced at $1,100, it trades $60 (5.8 percent) over parity. If the stock falls to $45, parity drops to $900 and the investment value floor takes over.