Which of the following is an example of a secondary market transaction?

• A. A corporation sells newly issued stock to the public in an initial public offering (IPO).
• B. A company issues new bonds directly to investors.
• C. A private company sells shares directly to a venture capital firm.
• D. An investor sells shares of Apple Inc. to another investor on the New York Stock Exchange.

Answer: (D)

Verified step by step guidance

1. Understand the concept of secondary market transactions: Secondary markets are where securities are traded after their initial issuance. This means that the securities are being bought and sold between investors, rather than being issued directly by the company.
2. Differentiate between primary and secondary market transactions: Primary market transactions involve the initial issuance of securities directly from the company to investors (e.g., IPOs or new bond issuances). Secondary market transactions occur when investors trade securities among themselves, without the involvement of the issuing company.
3. Analyze the given options: Review each option to determine whether it represents a primary or secondary market transaction. For example, an IPO is a primary market transaction because the corporation is issuing new stock directly to the public.
4. Focus on the correct answer: The transaction where 'An investor sells shares of Apple Inc. to another investor on the New York Stock Exchange' is a secondary market transaction because it involves the trading of existing shares between investors, not the issuance of new shares.
5. Conclude the reasoning: Secondary market transactions are essential for providing liquidity to investors, allowing them to buy and sell securities freely after their initial issuance. This is the key characteristic of the correct answer in this problem.