Sometimes It Is Not Clear If a Particular Security Is

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The Answer is This can boil down to a legal and semantic issue with hybrid securities,but at this stage,it is expected the student recognizes that equity represents an ownership interest and it is a residual claim in the firm. This means that equity holders are paid after debt holders which increases the risk of equity ownership over debt ownership. We will soon see this increased risk is rewarded by a higher required rate of return. Debt holders,on the other hand,have an upper limit on their wealth; that being the payment of periodic interest and the repayment of principal.

Sometimes It Is Not Clear If a Particular Security Is

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