The Most Important Function of an Underwriter Is To

question 36

Multiple Choice

The most important function of an underwriter is to:

• A) assess the firm's capital needs.
• B) approve the prospectus before distribution to the public.
• C) provide private placement of the firm's debt.
• D) buy the securities issue from the firm and resell the securities to the public.

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Definitions:

Unsystematic Risk

The risk associated with a specific company or industry, which can be mitigated through diversification of an investment portfolio.

Security Market Line

A representation in the capital asset pricing model (CAPM) showing the relationship between expected return and systematic risk.

Risk Premium

The extra return expected by an investor for holding a risky asset instead of a risk-free asset.