Which of the Following Statements Regarding Firm Commitment IPOs Is

question 27

Multiple Choice

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

• A) 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.
• B) The underwriter purchases the entire issue (at an offer price) and then resells it at a slightly higher price to interested investors.
• C) It is the most common underwriting arrangement.
• D) The underwriter guarantees that it will sell all of the stock at the offer price.

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Definitions:

Inferior Goods

Goods for which demand decreases as consumer income rises, opposite to normal goods.

Normal Goods

Goods for which demand increases as consumer income rises, and decreases as consumer income falls.

Complements

Goods or services that are often used together, where an increase in demand for one leads to an increase in demand for the other.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with high elasticity indicating a strong response and low elasticity indicating a weak response.