19 Securities

19 Securities - Prentice-Hall, Inc. Security Markets: a...

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Prentice-Hall, Inc. 1 Chapter 12 Securities Markets Security Markets: a place where you buy or sell securities • The primary markets • Secondary markets -- stocks • Secondary markets -- bonds A Security • An investment instrument, other than an insurance policy or fixed annuity, issued by a corporation, government, or other organization which offers evidence of debt organization which offers evidence of debt or equity. The ____________ Market • The market for new security issues (first). In the primary market the security is purchased market the security is purchased directly from the issuer (corporation) The Primary Market -- Two Forms of Issues 1. ___________ offerings (IPO) -- the first time the company’s stock is traded publicly. 2 Seasoned new issues new shares 2. Seasoned new issues -- new shares being issued by a company that is already publicly traded. Why Go IPO? • When a privately held corporation needs to raise additional capital, it can either take on debt or sell partial ownership. If the corporation sells ownership to the public it corporation sells ownership to the public, it issues an IPO. • Capital raised through IPO does not have to be repaid.
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Prentice-Hall, Inc. 2 How to set up an IPO • A corporation will hire an investment bank to facilitate the sale of its shares to the public. This process is commonly called ___________________. Underwriting • In such a case, the underwriter will guarantee a certain price for a certain number of securities to the corporation (in exchange for a fee) Thus the issuer is exchange for a fee). Thus the issuer is secure that they will raise a certain minimum from the issue, while the underwriter bears the risk that the security does not do well. Microsoft Stock • IPO issued March 13, 1986 • If you bought one share at the $21.00 IPO price, today you'd have 288 shares worth $ _________. Secondary Markets • Trade previously owned shares of stock. • Consist of organized exchanges and an
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19 Securities - Prentice-Hall, Inc. Security Markets: a...

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