Which of the Following Best Describes a Firm Commitment IPO

question 22

Multiple Choice

Which of the following best describes a firm commitment IPO?

• A) The underwriter purchases the entire issue at a small discount and then resells it at the offer price.
• B) The underwriter sells new issues directly to the public in an online auction.
• C) The underwriter tries to sell the stock for the best possible price but does not guarantee that the stock will be sold.
• D) The underwriter solicits bids from investors and chooses the highest price at which there is sufficient demand to sell the entire issue.

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Definitions:

Total Utility

The complete fulfillment derived from the consumption of a specific amount of products or services.

Consumer Surplus

The gap between the total price consumers are willing and able to shell out for a good or service and the amount they really pay.

Water-Diamond Paradox

An economic paradox that questions why diamonds are pricier than water despite water being essential for survival and diamonds having relatively little practical use.

Marginal Utility

The extra pleasure or benefit a consumer receives from using an additional unit of a product or service.