Which One of the Following Statements Concerning IPOs and Underpricing

question 62

Multiple Choice

Which one of the following statements concerning IPOs and underpricing is correct?

• A)IPO underpricing primarily benefits a firm's pre-issue owners.
• B)IPO underpricing is a function of the underwriting spread.
• C)The more an issue is underpriced, the more it tends to be oversubscribed.
• D)Underpricing tends to discourage investors from participating in the IPO market.
• E)Undersubscribed shares generally tend to also be underpriced shares.

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Definitions:

Theory of Profit-maximizing

A principle that suggests firms aim to achieve the highest possible profits by adjusting production levels, prices, or other variables.

Decreasing Returns To Scale

A situation where increasing the inputs proportionately results in less proportionate increases in output.

Profit-maximizing Output

The level of production at which a company achieves the highest possible profit, determined by the point where marginal revenue equals marginal cost.

Production Function

A mathematical representation of the relationship between inputs (like labor and capital) and the maximum output that can be produced with those inputs.