Background: In the 1710s, the British government borrowed heavily to finance wars. To reduce the interest on this debt, the government converted this debt into stock from a private company. The private company would only be paid a fee by the government equal to half the interest the government was paying on its debt. The company uses these fees to pay dividend on the stock it issues, which it uses to buy outstanding government debt.
Question: Why would an investor sell 1000 British pounds of debt that might pay 4% interest in return for 1000 pounds of stock in the company that paid only 2% dividends?