Market risk affects the cost of raising equity. Changes in interest rates, inflation rates, and the economy contribute to market risk. Companies finance debt in a variety of ways. Firms can issue stock, corporate bonds, commercial paper, or borrow money to finance projects. The weights of debt and equity components are assigned using market value.
Preferred stock is issued to raise capital.
While preferred stock is less risky than common equity, it is riskier than debt. The value of the stock is dependent on the number of shares outstanding by the market value per share. Most stock is traded on organized exchanges. The OTC market does not have a trading floor, but instead executes buy and sell orders through a telecommunications network. Recent developments have led to electronic trading over the internet.