An Underwriter Sells 2 Million Shares of Stock to the Public

question 43

Multiple Choice

An underwriter sells 2 million shares of stock to the public at $40 per share.The issuing firm receives $73 million before non-underwriting costs.

• A) The underwriter's spread was 2.14%.
• B) The underwriter's spread was $40.
• C) The underwriter's spread was 8.75%.
• D) The underwriter's spread was 9.59%.

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Definitions:

Labor Rate Variance

The variance between the real hourly wage workers receive and the anticipated or usual wage rate, when multiplied by the total hours of work.

Labor Efficiency Variance

The variance between the real hours spent working and the anticipated standard hours, times the normal wage rate.

Standard Hours

The predetermined amount of time expected to complete a task or produce a unit of product under normal conditions.

Actual Output

The real quantity of goods or services produced by a company during a specific period.