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Unformatted text preview: was too great for the investor, but the returns offered by debt securities
insufficient for the investor’s needs, then a hybrid security would offer a perfect compromise. A company might be interested in offering a hybrid security if it did not want to give up all that would be required by a
traditional equity security or if it had no additional capacity to raise funds through traditional debt
securities. An issue of preferred stock, for example, would allow the company to raise financing without
giving up the voting rights associated with common stock; further, if the company could borrow no
additional money from its banks and the capital markets, the preferred stock issue might be marketable
as it would not carry the interest payments required each year under a debt issue.
Characteristics associated with debt include a higher priority toward receiving payments in case of a
company liquidation and some type of fixed requirement of periodic payments. Characteristics associated
with equity include a vote for the directors of the company and no fixed maturity date for the financial
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