Who Bears the Bulk of the Cost of Underpricing an IPO

question 73

Multiple Choice

Who bears the bulk of the cost of underpricing an IPO?

• A) The underwriters
• B) The investors who purchase IPO shares
• C) All of the after-IPO shareholders
• D) The pre-IPO shareholders

Understand how changes in wages and nonlabor income affect labor supply when leisure is considered a normal good.

Comprehend the utility maximization principle and its application to consumption and labor choices.

Understand the concept of net seller and net buyer in the context of price changes.

Grasp the implications of specific utility functions on labor supply decisions.

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Definitions:

Bought Deal

A financing arrangement where an investment bank buys an entire new issue of securities from a company and resells it to investors.

Underwriter

A person or organization that evaluates and assumes the risk of another entity, often involved in issuing new securities as part of public offerings.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership such as options.

Floatation Costs

The expenses incurred by a company when issuing new securities, including underwriting fees, legal fees, and registration fees.