One Reason That Underpricing of New Issues Occurs More Frequently

question 6

Multiple Choice

One 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:

Psychotic Mania

A severe form of mania that includes symptoms of psychosis such as hallucinations or delusions, often observed in bipolar disorder.

Multiple Personality Disorder

Also known as Dissociative Identity Disorder, it is a severe condition in which two or more distinct identities, or personality states, are present in—and alternately take control of—an individual.

Derailment

A thought process characterized by a sudden shift from one topic to another, which can appear incoherent to the listener; often seen in psychotic disorders.

Neologism

A newly coined word or expression that may be in the process of entering common use.