1) Why would a firm Issue IPOs? Describe the main steps involved in the IPO process. What happens if all the shares are not immediately sold when the IPO is issued? Would the dividend discount model be a good model to use when valuing a company that just went public two years ago? Explain. Briefly explain what contingent claims are and provide two examples ways specific contingent claims might be useful to you as an investor.
2) Describe the main characteristics of a bond. Discuss two different types of risk that bondholders might be exposed to. What could a bondholder do to limit exposure to one of these risks? Explain the two types of bond coventents and provide an example? Are these coventents typically viewed as beneficial by bondholders? Stockholders? Explain. If a bond expires in 10 years and you only plan on holding the bond for one more year is knowing the YTM useful? Explain.