CFA Level I · CFA Level I Exam · Fixed-Income Markets for Corporate Issuers
Which of the following best describes the role of the secondary market for an issuer's bonds?
The secondary market gives investors liquidity and gives the issuer price and yield information useful for pricing future issues. Trades occur between investors, so the issuer receives no proceeds, and trading does not change the coupon on outstanding bonds.
- AIt raises new capital directly for the issuer
- BIt provides liquidity to investors and price information for the issuerCorrect
- CIt sets the coupon rate on bonds already outstanding
Explanation
Secondary trading occurs between investors, so proceeds do not go to the issuer; it gives investors liquidity and reveals market yields useful for pricing future issues. Coupons on outstanding bonds are fixed by the contract, not reset by trading.
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