What Is the Impact of Underpricing a Securities Issue

question 1

Multiple Choice

What is the impact of underpricing a securities issue?

• A)The underwriter loses while the issuing firm gains.
• B)Both the underwriter and the outside investor gains while the issuing firm loses.
• C)The outside investor loses while the issuing firm gains.
• D)Both the underwriter and the outside investor loses while the issuing firm gains.
• E)All three parties lose when the securities are underpriced.

---

Definitions:

Production

The process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output).

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive in the market.

Consumer Surplus

The gap between the price consumers are ready to offer for a good or service and the effective amount they spend on it.

Trade

The process of purchasing, vending, or trading products and services among individuals or nations.