Which of the Following Statements Regarding Firm Commitment IPOs Is

question 39

Multiple Choice

Which of the following statements regarding firm commitment IPOs is FALSE?

• A)It is the most common underwriting arrangement.
• B)The underwriter purchases the entire issue (at the offer price)and then resells it at a slightly higher price to interested investors.
• C)If the entire issue does not sell out, the remaining shares must be sold at a lower price and the underwriter must take the loss.
• D)The underwriter guarantees that it will sell all of the issue at the offer price.

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Definitions:

Option Contract

A contract which grants the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price within a specific time period.

Underlying Asset

The specific financial instrument (e.g., stock, bond, commodity) on which a derivative's value is based.

Puts

A type of option contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specific time frame.

Strike Price

The fixed price specified in an options contract at which the holder can buy or sell the underlying asset.