FM Class Notes 2:23:21 - Alvaro Taboada Spring 2021 PDF

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Alvaro Taboada Spring 2021...

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The lowest claims so they are the residual claimants of any money that's left after paying everybody there first holders have higher priority than common stockholders so in terms of risk is preferred stock slightly less risk than common stock

2 Financial Markets: primary and secondary: Here you have the companies governments or institutions that need access to funds issue securities for the first time to invest and this could be that initial public offering of the company was private and for the first time in offering shares to the public or it could be a season offering where a company that's already treated in stock markets issues music your it's because they need to raise more cash or whatever the ultimate objective is in these primary market transactions typically the it sure hires an investment bank and intermediary that going to be the link between the company and the ultimate investors who are going to purchase those securities at that investment bank that intermediary can participate in two ways what is called the best efforts and the best way to define it and give an example I'm a company I want to have a private company and I want to go to make it public so public is not want to fraise a lot of funds for expansion of that business I hire an investment bank name Investment bank is going to do the due diligence and market that issue price that issue but if they're doing on a best efforts they're not going to make any commitments as to how much money I would be able to raise from that issue they're going to say we're going to do our best to raise as much funds from the issue as possible but that's going to depend on the demand for your particular security and obviously the financial day economic conditions and others so it may be that even though I wanted to raise 100,000,000 best effort commitment or the best effort scenario the investment banking only raised 50 million and that's it. Reason: Allow everyone to get funds to fund a project in mind Secondary markets: - Not clear-cut benefit of lowering costs and raising funds - Benefits: o Liquidity: Stocks have no expiration date, security that has no maturity longterm. Without 2ndary makets who would buy these with nothing in return for the liquidity o...