The Most Likely Reason That Underpricing of New Issues Occurs

question 53

Multiple Choice

The most likely reason that underpricing of new issues occurs more frequently than overpricing is the:

• A) Underwriters' desire to reduce the risk of a firm commitment.
• B) Demand for a new issue is typically too high.
• C) Underwriters earn low rates of return
• D) Issuing firms demand that equity be underpriced.

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Definitions:

Mentors

Experienced individuals who provide guidance, advice, and support to less experienced persons, fostering their development and growth.

Formally Assigning

The process of officially allocating responsibilities, tasks, or resources to individuals or teams.

Effective Approach

A method or technique that has been proven to lead to the desired outcome or success in achieving specific goals.

Corrective Action

Steps taken to eliminate the causes of an existing nonconformity, defect, or other undesirable situation to prevent recurrence.