Which of the following securities is referred to as hybrid security?

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks which of the listed securities is referred to as a hybrid security, with four options.
Option a: 'Ordinary shares' are classic equity instruments that represent ownership and typically carry voting rights and residual claims on assets. They do not combine debt-like features such as fixed interest payments, so they are not considered hybrid securities.
Option b: 'Preference shares' are commonly described as hybrid securities because they blend debt-like and equity-like characteristics. They typically pay a fixed dividend (debt-like) and have priority over ordinary shares in liquidation (equity-like), while still representing an equity stake. This mix of features justifies calling them hybrids.
Option c: 'Commercial papers' are short-term debt instruments issued by corporations and banks to meet immediate liquidity needs. They are pure debt instruments and do not combine equity characteristics, so they are not hybrids.
Option d: 'Bonds' are straightforward debt securities with fixed interest payments and principal repayment. They lack the equity-like features that characterize hybrids, so they are not hybrid securities.
In summary, the distinguishing factor is the combination of debt-like and equity-like traits, which aligns with preference shares rather than ordinary shares, commercial papers, or bonds.

MCD2170 - T1 - 2025 Week 7 Post class homework

Which of the following securities is referred to as hybrid security?

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