Letter stock is
- a handwritten certificate representing a corporate IOU.
- a mass mailing offering a security for sale.
- securities issued by the United States Postal Service.
- privately placed common stock that cannot be immediately resold to the general public.
Answer d. privately placed common stock that cannot be immediately resold to the general public.
Answer Explanation
Correct answer is (d) Privately placed common stock that cannot be immediately resold to the general public. A letter stock is a share of common stock that is privately held by a specific investor and whose resale is restricted. Stocks are typically subject to restrictions so that they do not flood the market and cause significant price fluctuations.
Private placements or offerings of letter stock are often conducted by companies where they sell their shares to a select group of investors, such as institutional investors or high-net-worth individuals. Before they can sell the stock to others, they are usually required to hold it for a certain period of time. A letter “C” usually appears on the stock certificates issued for these shares, indicating that they are subject to resale restrictions.
Why the other options are not correct
a. handwritten certificate representing a corporate IOU.
Using handwritten certificates to represent corporate IOUs is incorrect because the description provided indicates that it is more appropriate to use scrip certificates than letter stock. A scrip certificate is essentially an IOU (I owe you) from the company to the creditor, promising to repay the debt with interest at a specified date. It can be handwritten or printed.
b. A mass mailing offering a security for sale:
This is incorrect because it describes a prospectus rather than letter stock. Whenever a company offers its securities for sale to the public, it issues a prospectus. The information provided in the prospectus includes information about the company, its financials, business model, and investment risks.
c. Securities issued by the United States Postal Service:
This option is incorrect because the term “letter stock” does not refer to securities issued by the United States Postal Service. It is a government agency that delivers mail and provides postal services, and it does not issue securities or stocks.
Conclusion
In conclusion, letter stock refers to company stock that cannot be immediately sold to the general public. It is often used in private placements or offerings to specific investors and comes with restrictions on resale.
The other options (a) A handwritten certificate representing a corporate IOU, (b) A mass mailing offering a security for sale, and (c) Securities issued by the United States Postal Service are incorrect because they do not accurately define letter stock. Investors and companies engaged in fundraising or capital-raising activities need to understand the different types of securities and financial instruments.
I am Bibisha Shiwakoti a final year BBS student from Janapremi College. I have completed my higher secondary education at Kalinchowk Secondary School.
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