If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:
82. When underwriters are unsure of the demand for a new offering, they:
A. reduce their spread.
B. undertake the issue on a firm commitment basis.
C. undertake the issue on a best efforts basis.
D. provide shelf registration for the issue.
83. The most likely reason that underpricing of new issues occurs more frequently than overpricing is that:
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.
84. How much will a firm receive in net funding from a firm commitment underwriting of 250,000 shares priced to the public at $40 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally, the firm pays $600,000 in legal fees.
85. The primary reason for an underwriters' syndication is to:
A. monitor the actions of the different underwriters.
B. reduce the risk of selling a large issue.
C. increase the size of the spread.
D. avoid the scrutiny of the Securities and Exchange Commission.
86. The enactment of shelf registration is likely to have increased:
A. the cost of issuing new securities.
B. the profits of venture capitalists.
C. competition among underwriters.
D. the underpricing of securities.
87. Underwriters are more likely to oversell new stock issues during:
A. a bear market or market crash.
B. a stable period.
C. a bull market or market boom.
D. all of these.
88. Stock underwriters are:
A. investors seeking low prices.
B. regulatory agencies that evaluate equity offerings.
C. the firm's founders who guarantee a stock's performance.
D. investment banking firms that coordinate equity offerings.
89. When underwriters offer a firm commitment on a stock issue, they:
A. employ their best efforts in selling the stock.
B. guarantee the proceeds to the issuing firm.
C. agree to purchase the venture capitalists' shares.
D. assure purchasers that the stock will appreciate.
90. Which of the following is correct for stock issued under a firm commitment where the underwriter is to receive an 8% spread?
A. The underwriter's profits are guaranteed to be 8%.
B. The underwriter must sell at least 92% of the shares.
C. The underwriter receives 8% of all shares.
D. The underwriter may suffer a loss on the issue.
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