An Investment Banker Agrees to Underwrite an Issue of 5

question 41

Multiple Choice

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share. What is the profit (loss) to the investment banker?

• A)Profit of $7,500,000.
• B)Profit of $2,000,000.
• C)Profit of $7,000,000.
• D)Loss of $7,500,000.
• E)Loss of $2,000,000.

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Definitions:

Contract Modification

Any change or alteration made to the terms of a contract, agreed upon by all parties involved.

Price Change

The fluctuation in the selling price of goods or services over a period of time.

Moral Obligation

A duty or commitment that is not legally enforceable but is dictated by personal ethics or social norms.

Adequate Consideration

Sufficient value that is fairly exchanged between parties in a contract.