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?

• A)On average,IPOs appear to be underpriced.
• B)The long-run performance of a newly public company (three to five years from the date of issue)is superior to the overall market return.
• C)The number of issues is highly cyclical.
• D)The costs of the IPO are very high,and it is unclear why firms willingly incur such high costs.

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