Which of the following best describes common stock?

Common stock represents ownership in a company, which is the central characteristic that distinguishes it from other types of securities, such as debt instruments. When an individual buys common stock, they are essentially purchasing a share of the company’s equity. This ownership provides the stockholder with rights to vote on key corporate matters and a claim on a portion of the company’s assets and earnings, typically realized through dividends and capital appreciation.

Common stockholders are at the bottom of the capital structure in terms of payout priority, meaning they have less claim to the company’s assets in the event of liquidation compared to creditors and preferred stockholders. However, this ownership also means they stand to benefit more significantly from the company’s growth as they capitalize on the company's profits.

In contrast, the other options incorrectly describe common stock. Common stock is not a debt security with fixed interest, as it does not guarantee repayments or returns like bonds do. It also generally carries a higher risk compared to bonds, as stock prices can be more volatile and dividends are not guaranteed. Lastly, common stock does not have requirements for large denominations; it can often be purchased in smaller quantities, making it accessible to a wider range of investors.