Multiple Choice
Sarah recently received a $500{,}000 lump sum and wants to invest in securities. Which of the following would be considered an equity security?
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7. Receivables and Investments
Introduction to Investments in Securities
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An _______ is when a private company offers stock to the public for the first time.
A
Stock Split
B
Bond Issuance
C
Initial Public Offering (IPO)
D
Secondary Market Sale
Verified step by step guidance1
Understand the concept of an Initial Public Offering (IPO): An IPO occurs when a private company offers its stock to the public for the first time, transitioning from private ownership to public ownership.
Differentiate between the options provided: A stock split involves dividing existing shares into multiple shares, a bond issuance refers to the company raising funds by issuing debt securities, and a secondary market sale involves trading existing shares among investors, not the company offering shares for the first time.
Recognize that an IPO is a primary market activity, where the company directly sells shares to investors, unlike secondary market sales which occur between investors.
Consider the significance of an IPO: It allows the company to raise capital from public investors and often marks a major milestone in the company's growth and development.
Conclude that the correct answer to the problem is 'Initial Public Offering (IPO)' based on the definition and context provided.
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