Primary and Secondary Market Analysis for Raising Capital
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The primary market is the market where new securities are traded. The secondary market is where previously issued stocks are traded. Corporations need to raise capital for investments and equipment purchases.
I.) Why might a large corporation want to raise long-term capital through a private placement rather than a public offering?
II.) What is the capital market?
How is the primary market different from the secondary market? In your opinion, are these markets efficient? Why?
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Solution Summary
This solutions explains that the primary market is the market where new securities are traded. The secondary market is where previously issued stocks are traded. Corporations need to raise capital for investments and equipment purchases.
Additionally it states why a large corporation may want to raise long-term capital through a private placement rather than a public offering. It defines why the primary and secondary markets are efficient.
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I.) Why might a large corporation want to raise long-term capital through a private placement rather than a public offering?
A large corporation may want to raise long-term capital through a private placement rather than a public offering because it reduces costs. Firms can avoid the costs of a public offering and many of the requirements of organizations like the SEC to produce adequate long-term financing. Although private placements are extremely beneficial to smaller to medium-sized companies they can be useful to larger organizations that develop solid relationships with lenders. Although establishing relationships with lenders and avoiding registration fees is ...
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