What is the Difference Between Primary Markets and Secondary Markets?

Financial Institution Unit V
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What is the difference between primary markets and secondary markets?
Primary markets relate to markets where financial instruments are first issued for the buyer to purchase unlike the secondary markets where securities already exist in the market as they have previously been issued or are resold (Mishkin, & Eakins, 2012). The initial issuer of the securities can only transact the financial instruments via the primary market. For instance, the initial public offer where companies are listed publicly is an example where a company sells securities in the stock exchange which acts as the primary market at the time. The subsequent purchase and sale of shares can occur through intermediaries, dealers and stock brokers in the secondary market.
The secondary markets can be exchanges organized into central locations, but they can also be in the form of over the counter markets with various locations to facilitate the sale of titles (Burton, Nesiba & Brown, 2014). The secondary markets are associated with liquid securities compared to the primary market making it easier to sell in both markets. This highlights that secondary markets are more important compared to the primary markets which only deal with new issue of securities. In any case, the secondary markets influence the price of firs issuing securities in the primary market.
We are currently bidding on Treasury bills and have determined that we must have a 5% return for a $1,000 T-Bill that will mature in one year. How much would we be willing to bid on the Treasury bill? If we are bidding on a 13 weeks Treasury bill with a 1% return and a 26 weeks Treasury bill with a 2% return for a $1,000 T-bill, how much would we be willing to bid on the Treasury bills?
Calculations
Bidding on a 13 weeks Treasury bill with a 1% return
The expected interest rate is i= F-P/P*52/13
0.01=1000-p/1000*4
1000-p*4=10
3990/4=$997.50
26 weeks Treasury bill with a 2% return for a $1,000 T-bill
0.01=1000-p/1000*52/26
1000-p*2=20
1980=2=$990
In calculating the bid that one would place then the Treasury bill discounting formula is useful given that there is an assumption that as an investor I would be willing to pay less for T-bill compared to the security’s worth when it matures. The 13 day and 26 day securities are short-term, meaning that maturity is likely to take place even before mailing out the interest checks (Investopedia, n.d.). Also closely related to the discount rate is the annualized yield which uses the 365 days and not 360 days and also calculates using the current market price as the denominator (F-P/F) unlike the discount rate which relies on the face value as the denominator (F-P/P). The differences between the discount rate and the face value is the interest and for the two scenarios, investors expected to receive the par value of the T-Bill after the 13 and 26 weeks respectively. The annual return rate as well as the time period affects the amount that the investors are willing to purchase the T-Bills as they would want to maximize value.
What is current yield? We would like to determine the current yield of an inves...