The Most Likely Reason That Underpricing of New Issues Occurs

question 75

Multiple Choice

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

• A) underwriters want to reduce the risk of a firm commitment.
• B) the 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:

Competitive Positions

A firm's relative standing in its industry or market, determined by its competitive advantage, market share, and ability to attract and retain customers.

Cost

The amount of money required to purchase, maintain, or develop a product or service.

Differentiation

A strategy employed by businesses to make their products or services stand out from competitors', often through unique features, branding, or quality.

Flexibility

The ability to adapt and change in response to altering conditions and circumstances.