INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 1, Problem 5PS
Summary Introduction
To state: If corporate
Introduction:
Primary market: Is considered as the market securities are issued for the first time. The companies sell new shares or stocks, bonds for the first time to the public. This happens when it calls for an initial public offering(IPO).
The secondary market already issued securities are traded by investors. Trading of securities normally happens in stock markets.
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Students have asked these similar questions
Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?
Which is false about long-term sources of a firm’s capital?
a. Preferred shares are securities whose intrinsic value is based on prospective earnings
b. Some types of bank loans may require collateral from potential debtors
c. Retained earnings are internal sources of funding that can be utilized for expansion
d. All types of corporations may issue equity securities to the public
A corporation might have treasury stock listed on their financials for all the following reasons except:
A. they wish to control the market price
B. they wish to be a majority stockholder
C. they wish to limit dividend payments
D. they wish to avoid takeover
Chapter 1 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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Similar questions
- a. What are the risks and rewards of investing in the stock market as compared to the bond market?b. “Because corporations do not actually raise any funds in secondary markets, they are less important to the economy than primary markets.” Comment.arrow_forwardFinancial risk refers to the: Multiple Choice possibility that interest rates will increase. risk of owning equity securities. the risk that the share price may not reflect all known information general business risk of the firm. risk faced by equity holders of firms with debt.arrow_forwardWhich of the following statements is most correct? Group of answer choices Money market transactions include common stock transactions. Preferred stockholders are paid before bondholders but after common stockholders. One of the problems in corporations is that managers often put their own interests ahead of those of the stockholders. U.S. T-bills are considered risky securities. None of the above statements is correct.arrow_forward
- How is an investment banker compensated for promoting and facilitating the sale of a company’s shares to the public?arrow_forwardWhich of the following does not apply to secondary markets? Group of answer choices Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others. Transactions help to establish market prices for additional shares that may be issued in the future. Transactions are important to the efficient allocation of resources in our economy. New resources are provided when shares of stock are sold by the corporation to the initial owners.arrow_forwardWhich of the following would not be an appropriate reason for a firm to repurchase its stock: As an investment if management believes the market has undervalued the stock price. In order to have sufficient shares to cover employee stock programs. Solely to boost Earnings Per Share. Both A and B.arrow_forward
- Which of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forwardCorporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors. Is this true or false?arrow_forwardWhat is a Rights Issue?(a) The sale of rights to a bond coupon. (b) The right of shareholders to have the company buy back their shares. (c) It is where the firm raises additional equity capital after the IPO. (d) It is a sale of priority rights to creditors in the event of the company being wound up.arrow_forward
- Which of the following is correct a. In a leveraged recapitalization, a firm uses its excess cash to buyback shares b. In an LBO, a firm borrows and repurchases its shares thereby reducng the number of shares outstanding. c. In a leveraged recapitalization, a change of ownership occurs as the firm is sold d. In an LBO, debt is a major component of the financing and a change of control occurs. e. In an LBO, managers use excess cash to repurchase sharesarrow_forwardWhat is the distinction between that of Paid-in-Capital and Retained Earnings, in both differences and similarities? What characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? When would a company be able to declare a cash dividend? How many main categories of paid-in capital are there? And what are? What is the definition of the term par value of stock?arrow_forwardTo what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.arrow_forward
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