Chapter 10: Hybrid Securities: Preferred Stock and Convertibles Securities

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The Best of Both Worlds, The Worst of Both Worlds

Learning Objectives

In this chapter, you will

Be introduced to the two major forms of hybrid securities, preferred stock and convertible securities
Examine the advantages and disadvantages of preferred stocks and convertible securities

By the end of this chapter, you should be able to

Identify the advantages and disadvantages of preferred stock and convertible securities
Describe the main reason that preferred stock is most likely owned by corporations instead of retail investors
Calculate the various measures of convertible securities

Hybrid Securities: The Best and Worst of Both Worlds

In a backwater of the investment universe rarely visited by retail investors lives a group of instruments known as hybrid securities. It is very unlikely that you as an individual retail investor will choose hybrid securities as part of your investment portfolio but you never know. You may be drawn to these instruments. At the very least, you need to be able to explain the inherent problems with these choices for retail investors to your brother-in-law who is all excited about buying preferred stock instead of just plain old common stock.

Presentation file - Study guide

10.1: Preferred Stock
"Hey, don't I want Preferred Stock instead of just plain old Common Stock?" Ah, not really. Preferred stock does have some advantages but one major advantage for corporations who own preferred stock makes the usage of preferred stock for us retail investors not as attractive as they might seem. Let's explore.
10.2: Convertible Securities
Convertibles securities allow bonds and preferred stock to partake in the potential success of the company, similar to the common stock of a company. Let's see if you might want to choose these best of both worlds, worst of both worlds investments.
10.S: Summary
Congratulations ‒ You Have Finished Chapter 10 ‒ Hybrid Securities: Preferred Stock and Convertible Securities

"The Junction of Two Worlds" by Natalia Medd is licensed under CC BY-SA 2.0