CFA Level I · CFA Level I Exam · Equity Issuance and Trading
An investor buys 1,000 shares of a listed company from another investor through a stock exchange. Compared with the company's IPO, this trade most likely:
The trade leaves the company's cash balance unchanged. It is a secondary market transaction in which existing shares move from one investor to another, so no new shares are issued and the company receives no proceeds, unlike in an IPO.
- Aincreases the company's shares outstanding
- Bprovides new capital to the company
- Cdoes not change the company's cash balanceCorrect
Explanation
A secondary market trade transfers existing shares between investors. The company issues no new shares and receives no cash, so shares outstanding and cash are unchanged. An IPO, by contrast, raises capital and increases shares outstanding.
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