CFA Level I · CFA Level I Exam · Equity Instrument Features
Which of the following is the most likely reason a company might prefer to raise capital through a private placement of equity rather than a public offering?
A company would most likely choose a private placement to avoid the extensive disclosure and registration requirements of a public issue. Private placements go to a limited group of investors with lower cost and more confidentiality, whereas a broad investor pool and daily secondary trading are benefits of going public.
- ATo gain immediate access to the broadest possible pool of investors
- BTo avoid the extensive disclosure and registration requirements of a public issueCorrect
- CTo ensure that the shares can be traded daily on a secondary market
Explanation
Private placements are sold to a limited set of investors and generally avoid the full registration and disclosure burden of a public offering, lowering cost and preserving confidentiality. A broad investor base and daily secondary trading are advantages of public issues.
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