Which of these securities would likely provide the greatest potential for capital appreciation?

Common stock is typically considered the most likely security to provide the greatest potential for capital appreciation. This is due to several factors inherent in the nature of common stock.

Common stock represents ownership in a company, and as the company grows and becomes more profitable, the value of its stock can increase substantially. Investors in common stock often seek capital gains, which are the profits made from the sale of the stock at a higher price than what was paid for it. Since common stockholders have rights to vote and participate in potential company growth, they benefit from the full extent of any appreciation in stock value.

Preferred stock, while offering fixed dividends and priority over common stock in the event of liquidation, typically does not appreciate in value as significantly as common stock. Convertible bonds provide some potential for capital appreciation, especially if they can be converted into common shares, but this potential is limited compared to direct ownership in a growing company. U.S. Treasury STRIPs are essentially zero-coupon bonds that provide fixed returns but don’t offer the same level of capital appreciation potential associated with equity investments.

In summary, the growth potential tied to common equity ownership distinguishes it as the security most likely to experience significant capital appreciation.