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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
A company’s first offering of stock to the
Firm that acts as an
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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- Winter '14