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Lion Gate Entertainment (LGF) closed at 10.01 today and I just checked it again at 4:30PM, the closing price changed to 10.65? So strange.
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bkbaseball | Who exactly profits from a share of stock that is sold at a profit??? |
A share of IBM stock is purchased through the NYSE by an individual investor for $75 and sold one month later through the NYSE for $125. Who profits from this sale?
A. IBM
B. The first investor
C. The second investor
D. Both IBM and the first investor
What is the correct answer and why? |
 |
 
smu_cb
 |
The investor that purchased the share at $75 is the only one that profits. The market-maker, GS, BS, ML, or whoever it may be, for IBM will take a small profit (the bid/ask spread), but other than that only the investor that bought it at $75 will profit given the information you have listed. It's in the secondary market so IBM makes no money off it's sale. |
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JBReafsnyder
|
The first investor is obvious, he/she profits.
The second investor could profit (if it continues to go up).
IBM also stands to potentially profit itself from such a rise. If they want, they can issue (sell/pump into the market) more shares at a price near the new $125 point. Say they issue 5% more shares to the outstanding ones, you'd naturally expect a 5% drop in share price (to say $118.75) ... still much higher than the initial $75/sh. But now IBM would have a huge amount of capital coming in (cash from selling those new shares) to hopefully be used in new R&D or whatever, and hopefully restarting this whole process of doing well and attracting more shareholders. This is exactly how a company "grows." |
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ken p
 |
b |
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Emperor Norton II
|
There are two sales to consider. For the second sale at a price of $125, the first investor makes a profit.
The correct answer is fairly obvious, assuming a standard definition of "profits". |
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Byron W
 |
B The first investor profits b/c he bought for 75 and sold for 125 - 50 profit a share. The second investor whom he sold to owns the thing at 125, she hasn't made or lost. IBM doesn't make a anything b/c it was sold on the SECONDARY market. The company only makes $$ when it sells shares to the public. |
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Screaming Eagle
|
The first investor and IBM.
The first investor made $50 less any fees and taxes.
IBM because the volume of sales went up.
The brokerage company because they get a fee on the sale.
The IRS because it they get to collect the short term capital gains tax which is higher. |
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Bubba Ho-Tepppppp
|
What really is so confusing about this? Do you have some sort of point? What's with the multiple choice? Finally, is this a test question for an online class?
IBM already has the benefit of private investment facilitated by the market, but doesn't benefit anymore at this point because the stock is still "out," same as it was when the first inve stor had it.
The first investor made a killing in a month. The second investor wont know until the stock is in someone else hands. |
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