The Offer Price of Shares in an IPO Is Generally

question 44

Multiple Choice

The offer price of shares in an IPO is generally less than the price those shares sell for at the end of the first trading day. Which of the following parties suffer most from this situation?

• A) the buyers of shares after the initial offering
• B) the underwriters of the IPO
• C) the pre-IPO shareholders of the issuing firm
• D) the lead underwriter of the IPO

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Definitions:

Rents

Payments made for the use of property or land, often reflecting the value derived from its use.

Comparative Advantage

The ability of an individual or country to produce a good or service at a lower opportunity cost than others, underpinning international trade.

Comparative Disadvantage

A situation where a country or entity is less efficient at producing goods or services compared to another country or entity.

Absolute Advantage

The capacity of a person, corporation, or nation to manufacture a product or provide a service at a lower per-unit expense than any other participant in the market.