A corporation wishes to raise capital by issuing common stock to the public. The corporation would select which of the following to advise them on the stock issuance? A Investment Adviser B Investment Banker C Broker Dealer D Registered Representative
The correct answer and explanation is:
The correct answer is B. Investment Banker.
An investment banker plays a crucial role when a corporation wants to raise capital by issuing common stock to the public. The investment banker is a professional who works with companies to help them raise capital by issuing stocks and bonds in public or private markets. Their primary responsibility is to assist in the process of underwriting the new issue of stock, which involves evaluating the market conditions, determining the appropriate price for the stock, and helping to sell the stock to institutional or retail investors. Investment bankers also help companies with the regulatory aspects of issuing stocks, including ensuring that all legal and financial requirements are met.
The process of issuing common stock typically starts with the corporation hiring an investment banker. The investment banker conducts due diligence, prepares the necessary financial documentation, and markets the stock to potential investors. They act as intermediaries between the corporation and the investors. Often, they work with a syndicate of other investment banks to distribute the shares, especially for large issuances.
Investment bankers are also responsible for determining the terms of the stock issuance, including the price per share, the number of shares to be issued, and the timing of the offering. They might also help manage risks associated with the issuance by underwriting the entire deal or by taking on a portion of the offering themselves.
The other roles listed in the options are related to different aspects of financial services but do not directly assist in raising capital by issuing stocks:
- A. Investment Adviser: Provides advice on investments but does not assist with stock issuance.
- C. Broker Dealer: Facilitates buying and selling securities but does not help in the issuance process.
- D. Registered Representative: Works under broker-dealers and sells securities but does not typically handle the issuing process.