If the Managers of a Firm,which Issues IPO,have Better Information

question 4

Multiple Choice

If the managers of a firm,which issues IPO,have better information than investors:

• A)the investors who are allocated shares in the IPO could be subject to the winner's curse.
• B)it is likely that the initial offering will be underpriced to make investors feel better about the secondary issue.
• C)the investors will have an incentive to distort their true opinions of an initial public offering to ensure that subsequent issues are accurately priced.
• D)then the offer price will be on par with the expected closing price on the first trading day.

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Definitions:

Substitute Goods

Products that can be used in place of each other, satisfying the same needs or wants.

Lease Agreement

A contract between a lessor and a lessee for the rental of property, usually real estate, for a specified period of time.

Insolvent

The state of being unable to pay debts owed, often leading to bankruptcy proceedings.

In Transit

Describes goods or people that are in the process of being transported from one location to another.