Which of the Following Is True About Underwriting Securities

question 304

Multiple Choice

Which of the following is true about underwriting securities?

• A) The issuing firm, not the underwriter, bears all the risk from adverse price movements in a firm commitment sale.
• B) The method of marketing securities to the public is usually specified by the issuing firm, not the underwriter.
• C) The issuing firm, not the underwriter, will generally set the price for the offering.
• D) The spread earned by the underwriter is the difference between the price the underwriter pays for the security and the offering price of the security.
• E) It is common for a number of underwriters to form a syndicate so that the risk in marketing a security issue falls on the lead underwriter.

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Definitions:

Utility

The satisfaction or benefit derived from consuming goods or services.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can afford given their income and the prices of the goods.

Capital

Economic resources used in the production of goods and services, such as machinery, buildings, or tools.

Construction Crane

A type of machinery used on construction sites to lift and lower materials and to move them horizontally.