Residual claim

The right to whatever is left of earnings and assets after every prior claim has been met. It carries all the upside, and is paid last and only if something remains.

Where you will meet it

Residual claim appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Set out the kinds of equity security
  CFA Level I · Equity Investments

  “Common shares carry a residual claim on assets and earnings and normally carry votes; they may be callable or putable, which alters the risk each side bears.”

• Contrast what lenders and shareholders are entitled to and what drives each group
  CFA Level I · Corporate Issuers

  “Shareholders hold the residual claim, keeping everything left after creditors are paid, with unlimited upside and, thanks to limited liability, a loss capped at their investment.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with R · Glossary