Question

Principles of Finance II WEEK 6: Discussion Prompt #1 A hybrid security is a single financial security that combines two or more different financial instruments. This is an important distinction from single type securities. In 2008, during the banking crisis, we saw many companies and individuals who had invested in the mortgage-backed securities and lost everything after the crash. How does the hybrid security provide protection for investors? Would you prefer to invest in a hybrid security versus single security collateral type?

Answer 1

A hybrid security is a single financial security that combines two or more different financial instruments. This is an important distinction from single type securities

Yes it is true that it is far better to invest in different types of securities as omparison to invest the full amount in single security Hybrid Security because . Many bad condition and good condition occurs in the market time to time so suppose if we invest our money in only the debt securities and the company earns high profit so then we earn only a limited profit of Interest and shareholder takes more profit

similiarly if we invest in shares and company earns loss or no profit then and we are not able to get return and also there is a risk of our money invested and at that time debt holders may simply takes interest

so it is better to invest in a portfolio so that our risk is diversified and we take interest of both types of funds

as given in question about the situation of market of financial crises of 2008  we saw many companies and individuals who had invested in the mortgage-backed securities and lost everything after the crash Here in this case hybrid security provide security for investors by making diversified investment and creating a liability of second party to make a payment in case of loss Yes i prefer to invest in hybrid security in comparison to single security colleteral type.