Second it can borrow the money by issuing a bond a

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Unformatted text preview: hings to get the money. First, it can go to a bank and borrow the money. Second, it can borrow the money by issuing a bond (a promise to repay the “Everyone has the brainborrowed money with power to follow the stock interest; you will learn market. If you made it more about bonds later in through fifth-grade math, the chapter). Third, it can you can do it.” sell or issue stock in the — Peter Lynch company, or put another way, it sells part of the company. Stocks are also called equity because the buyer of the stock has part ownership of the company. When a company is initially formed, the owners set up a certain amount of stock, which is worth little. The owners of the company try to find people (usually friends and associates) who would be willing to buy the stock (on the hopes that one day it will be worth something). It would be nearly Section 1 Stocks 433 16 (428-459) EMC Chap 16 The IPO for Google took place on August 19, 2004. Why do you think the founding partners of Google decided to sell stock in their company? initial public offering (IPO) A company’s first offering of stock to the public. investment bank Firm that acts as an intermediary between the company that issues the stock and the public that wishes to buy the stock. 5/8/06 5:11 PM Page 434 impossible in these early days of the company for anyone who owned stock to sell it. For example, if Alvarez owned 100 shares of some new company that almost no one had heard of, hardly anyone would be willing to pay any money to buy the stock. As the company grows, and needs more money, it may decide to offer its stock on the open market. In other words, it offers its stock to anyone who wants to buy it. By this time, the company may be better known, making people more willing to buy it. The company makes what is called an initial public offering (IPO) of its stock. The process is quite simple. Usually an investment bank sells the stock for the company for an initial price, say $10 a share. How do you find out about an IPO? They are announced in the Wall Street Journal. When an IPO occurs for a stock,...
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