principal amount rather than at the present discounted value of the scheduled remaining payments. When interest rates fall, so that the present value of the scheduled mortgage payments increases, the borrower may choose to take out a new loan at todays lower interest rate and use the proceeds of the loan to prepay or re- tire the outstanding mortgage. This refinancing may disappoint pass-through investors, who are liable to "receive a call" just when they might have anticipated capital gains from interest rate declines. I. Introduction 2. Markets and Instruments The McGraw−Hill Companies, 2001           44 PART I Introduction     2.3 EQUITY SECURITIES   Common Stock as Ownership Shares   Common stocks, also known as equity securities or equities, represent ownership shares in a corporation. Each share of common stock entitles its owner to one vote on any matters of corporate governance that are put to a vote at the corporations annual meeting and to a share in the financial benefits of ownership.2 The corporation is controlled by a board of directors elected by the shareholders. The board, which meets only a few times each year, selects managers who actually run the cor- poration on a day-to-day basis. Managers have the authority to make most business deci- sions without the boards specific approval. The boards mandate is to oversee the management to ensure that it acts in the best interests of shareholders. The members of the board are elected at the annual meeting. Shareholders who do not attend the annual meeting can vote by proxy, empowering another party to vote in their name. Management usually solicits the proxies of shareholders and normally gets a vast majority of these proxy votes. Occasionally, however, a group of shareholders intent on un- seating the current management or altering its policies will wage a proxy fight to gain the voting rights of shareholders not attending the annual meeting. Thus, although manage- ment usually has considerable discretion to run the firm as it sees fit-without daily over- sight from the equityholders who actually own the firm-both oversight from the board and the possibility of a proxy fight serve as checks on that discretion. Another related check on managements discretion is the possibility of a corporate takeover. In these episodes, an outside investor who believes that the firm is mismanaged will attempt to acquire the firm. Usually, this is accomplished with a tender offer, which is an offer made to purchase at a stipulated price, usually substantially above the current mar- ket price, some or all of the shares held by the current stockholders. If the tender is suc- cessful, the acquiring investor purchases enough shares to obtain control of the firm and can replace its management. The common stock of most large corporations can be bought or sold freely on one or more stock exchanges. A corporation whose stock is not publicly