The Most Likely Reason That Underpricing of New Issues Occurs

question 85

Multiple Choice

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

• 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:

Aggression

A range of behaviors that can result in both physical and psychological harm to oneself, others, or objects in the environment.

True Group

A collection of individuals who are interdependent in their tasks, have shared objectives, see themselves as a cohesive unit, and are recognized by others as a group.

Collective

A term referring to a group or assembly of individuals who share common interests, goals, or identities, acting as a whole rather than as separate individuals.

Leader

An individual who guides or influences a group towards achieving its objectives, often characterized by the ability to motivate and direct others.