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A)Underwriters Appear to Use the Information They Acquire During the Book-Building

question 6

Multiple Choice

A) Underwriters appear to use the information they acquire during the book-building stage to intentionally under price the IPO,thereby reducing their exposure to losses.
B) The blue tooth option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price.
C) The lead underwriter usually makes a market in the stock and assigns an analyst to cover it.
D) In most cases,the preexisting shareholders are subject to a 180-day lockup;they cannot sell their shares for 180 days after the IPO.Once the lockup period expires,they are free to sell their shares.
Answer: B
Explanation: B) The green shoe option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price.
Diff: 2
Section: 23.2 The Initial Public Offering
Skill: Conceptual
-Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists?

Definitions:

Nonemployee Agent

An individual or entity that acts on behalf of another person or entity in a specific role or capacity but is not considered an employee for legal and tax purposes.

Fiduciary Duty

An obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders.

Bribe

Offering, giving, receiving, or soliciting something of value for the purpose of influencing the actions of an official or other person in charge of a public or legal duty.

Best Interests

A standard considering the wellbeing and benefits of an individual, especially in legal and financial decisions affecting that person.