Arguments Offered as Explanations,with or Without Market Evidence,as to Why

question 27

Multiple Choice

Arguments offered as explanations,with or without market evidence,as to why most U.S.equity issues are sold without rights include all the following except:

• A)underwriters buy at an agreed upon price and bear some risk of selling the issue.
• B)cash proceeds are available sooner in underwriting and the issue is available to a wider market.
• C)underwriters certify that the offering price is consistent with the true value of the issue.
• D)the underwritten offer price is generally set 48 hours prior to the offering while the rights price must be set much further in advance.
• E)underwriters tend to increase the stock price through their sales efforts.

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Definitions:

Discount

A reduction from the full price or value of a good, service, or financial instrument.

Face Amount

The nominal value stated on the face of a financial instrument, such as a bond, that the issuer promises to pay at maturity.

Prepaid Property Tax

An expense recorded when property taxes are paid in advance before they are due, treated as an asset on the balance sheet.

Property Tax Expense

An expense recorded to reflect the cost of property taxes levied by local governments, often related to real estate owned.