Multiple Choice
Which of the following statements about stock options is true?
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1. Introduction to Accounting
Types of Accounting
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Which one of the following parties can sell shares of ABC stock in the primary market?
A
Mutual funds
B
Stockbrokers
C
ABC Corporation (the issuing company)
D
Individual investors
Verified step by step guidance1
Understand the concept of the primary market: The primary market is where securities are created and sold for the first time. It is the market where companies issue new stocks or bonds to raise capital directly from investors.
Identify the role of the issuing company: In the primary market, only the issuing company (in this case, ABC Corporation) can sell its shares directly to investors. This is typically done through an initial public offering (IPO) or other issuance mechanisms.
Clarify the roles of other parties: Mutual funds, stockbrokers, and individual investors operate in the secondary market, where previously issued securities are bought and sold among investors. They do not have the authority to sell shares in the primary market.
Recognize the distinction between primary and secondary markets: The primary market involves the direct sale of securities by the issuing company, while the secondary market involves trading among investors after the securities have been issued.
Conclude that ABC Corporation, as the issuing company, is the only party that can sell shares of ABC stock in the primary market.
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