FINE 2000 Lecture Notes - Sustainable Development, Technical Analysis, Efficient-Market Hypothesis

29 views4 pages

coffeeduck671

24 May 2012

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

The owners of common stock of a firm are entitled to the firm"s residual cash flow (the remaining cash flow after employees and all other suppliers, lenders, and the government have been paid). They can also vote for the board of directors through one vote per share. Firms issues shares of common stock to the public when they need to raise money. They engage an investment dealer that provides investment banking services to help them price and sell these shares. Sales of new stock of the firm occur in the primary market (market for the sale of new securities by corporations). > in an initial public offering (ipo), a company that has been privately owned sells stock to the public for the first time. Seasoned offerings: when established firms raise money by issuing more shares and these new shares are also primary market issues. Secondary market: market in which already-issued securities are traded among investors.

Related Questions

Which of the following transactions does not take place in the primary market? An investor:

A. buying a newly issued municipal bond.

B. buying shares of an initial public offering.

C. selling one hundred shares of stock through a stock broker.

D. buying a U.S. Treasury bill through the government auction.

Which of the following is a primary market transaction?

a) You sell 200 shares of IBM stock on the NYSE through your broker.
b) You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.
c) IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.
d) One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.
e) IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

olivesquirrel267

Should Firms That Go Public Engage in International Offerings?

POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its stock at a higher price by attracting more investors. It will increase its demand by spreading the stock across countries. The higher the price at which it can issue stock, the lower is its cost of using equity capital. It can also establish a global name by spreading stock across countries.

COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time of the IPO, there will be less publicly-traded stock in the U.S. Thus, it will not have as much liquidity in the secondary market. Investors desire stocks that they can easily sell in the secondary market, which means that they require that the stocks have liquidity. To the extent that a firm reduces its liquidity in the U.S. by spreading its stock across countries, it may not attract sufficient U.S. demand for the stock in the U.S. Thus, its efforts to create global name recognition may reduce its name recognition in the U.S.

WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support?

indigobutterfly986

FINE 2000 Lecture Notes - Sustainable Development, Technical Analysis, Efficient-Market Hypothesis

Document Summary

Get access

Related Documents

FINE 2000 Chapter Notes - Chapter 7: Dividend Discount Model, American Depositary Receipt, Seasoned Equity Offering

FINE 2000 Chapter Notes - Chapter 7: Fiduciary, Dividend Yield, Foreign Corporation

FINE 2000 Chapter Notes - Chapter 7: Efficient-Market Hypothesis, Dividend Yield, Financial Statement

Related Questions