The Most Likely Reason That Underpricing of New Issues Occurs

question 99

Multiple Choice

The most likely reason that underpricing of new issues occurs more frequently than overpricing is the:

• A)underwriters' desire to reduce the risk of a firm commitment.
• B)demand for a new issue is typically too high.
• C)underwriters earn low rates of return.
• D)issuing firms demand that equity be underpriced.

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Definitions:

Business

The organized efforts and activities of individuals to produce and sell goods and services for profit.

Accounting Methods

The systematic practices a business uses to record and manage its financial transactions.

Ratio Comparisons

A method of financial analysis that involves comparing different financial ratios to assess a company's performance, financial health, or valuation.

Meaningful

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