Companies utilize capital markets to raise money for projects by
issuing stock IPOs, bonds and short-term money market securities.
Individual investors wish to earn interest or dividends on their savings
can meet companies looking to raise funds by issuing securities.
To illustrate how a corporate bond moves through capital markets,
suppose AB Co. needs to raise $1000. AB Co. offers a 10-year bond on the
bond market with a par value of $1000. The bond is purchased by someone
wishing to earn interest on the $1000 that they have available. AB Co.
receives the $1000 in cash and the investor receives a bond and the
promise of repayment plus interest. Should the bondholder later decide
he no longer wants the bond, he can sell it to another investor in the
marketplace.
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