Final answer:
The potential for appreciation or capital gains is typically higher for common stock compared to preferred stock. Common stock represents ownership in a company and gives shareholders voting rights and the potential to share in the company's profits. Preferred stock, on the other hand, generally has a fixed dividend payment and limited potential for price appreciation.
Step-by-step explanation:
The potential for appreciation or capital gains is typically higher for common stock compared to preferred stock.
Common stock represents ownership in a company and gives shareholders voting rights and the potential to share in the company's profits. The value of common stock can increase as the company grows and becomes more valuable, leading to capital gains. Preferred stock, on the other hand, generally has a fixed dividend payment and limited potential for price appreciation.
For example, when a company goes public, its common stock is usually offered at an initial public offering (IPO) price. If the company performs well and its value increases over time, the price of the common stock can also rise, resulting in capital gains for shareholders.