Final answer:
True, a company can indeed raise capital by selling stock or issuing bonds in both the primary and secondary markets.
Step-by-step explanation:
The statement 'A company can raise capital by selling stock or issuing bonds in either the primary or secondary market' is True. Companies at different stages of growth require funds to expand, innovate, or even just maintain operations. Access to financial capital is crucial and can be obtained through various means including taking loans, issuing bonds, or selling stock.
Options for Raising Capital
Selling stock or issuing bonds are two primary ways a company can raise capital. When a company sells stock, it is offering parts of its ownership to public investors in exchange for funds. This is typically done through an initial public offering (IPO), where the company's shares are sold to the public for the first time. After the IPO, stocks of the company can be traded in the stock market, which constitutes the secondary market.
Issuing bonds is another strategy for raising capital. Bonds are a form of debt where the company owes the bondholders a predetermined interest rate over a set period of time. While this does commit the company to regular interest payments, it doesn't dilute the ownership like selling stock does. As with stocks, bonds can be sold to the public in the primary market and traded on the secondary market thereafter.
Primary vs Secondary Markets
The primary market refers to the issuing of new securities directly by the company to investors, while the secondary market is where these securities are traded among investors after the initial issuance. It is on the primary market that the company directly receives funds from the sale of its securities. On the secondary market, the original issuer does not receive funds from the transactions, because the trades are between investors themselves.
Understanding the dynamics between primary and secondary markets is crucial as it affects the liquidity of the securities and how companies can continue to raise capital after the original sale. Financial investors, venture capitalists, and angel investors often engage in these markets to diversify portfolios, support new businesses, or trade securities for profit.