Interpret the following statements made by financial analysts:
- The stock price of Bank XXX experienced a significant drop last week due to the Central Bank statement concerning the rapid increase in inflation.
- The CFO of PT YYY was eager to issue 7-year corporate bonds due to his views on the direction of interest rates over the next 10 years.
- Investors are concerned about Bank ZZZ’s large portfolio of zero-coupon bonds due to the existing market expectations regarding the future direction of interest rates.
Denton Co. plans to engage in an IPO and will issue 4 million shares of stock. It is hoping to sell the shares for an offer price of $14. It hires a securities firm that suggests that the offer price for the stock be $12 per share to ensure that all the shares will be easily sold.
- Explain the dilemma here for Denton Co.
- What is the advantage of following the advice of the securities firm? What is the disadvantage?
- Is the securities firm’s incentives to place the shares always aligned with that of Denton Co.? If not, what potential problems may exist?