Each of these hybrid securities is described in the

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Unformatted text preview: hase warrants. Each of these hybrid securities is described in the following pages. The final section of this chapter focuses on options, a popular derivative security—a security that is neither debt nor equity but derives its value from an underlying asset that is often another security. As you’ll learn, derivatives are not used by corporations to raise funds but, rather, serve as a useful tool for managing certain aspects of the firm’s risk. Review Question 16–1 Differentiate between a hybrid security and a derivative security. How do their uses by the corporation differ? LG2 16.2 Leasing leasing The process by which a firm can obtain the use of certain fixed assets for which it must make a series of contractual, periodic, tax-deductible payments. lessee The receiver of the services of the assets under a lease contract. lessor The owner of assets that are being leased. operating lease A cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an asset’s services; generally, the total payments over the term of the lease are less than the lessor’s initi...
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