Asked by nikki scalera on Jul 17, 2024
Verified
With firm commitment underwriting, the issuing firm:
A) Is unsure of the total amount of funds they will receive until after the offering is completed.
B) Is unsure of the number of shares they will issue until after the offering is completed.
C) Knows exactly how many shares will be purchased by the general public during the offer period.
D) Accepts the entire risk of the stock offer.
E) Knows up-front the amount of money they will receive from the stock offering.
Firm Commitment Underwriting
An agreement in which an underwriter commits to buying all the securities offered by the issuer and selling them to investors, taking on the full risk of selling the securities.
Stock Offering
The issuance of new shares by a company to the public or existing shareholders to raise capital.
Number Shares
The total units of stock currently held by all shareholders of a particular company, including restricted shares owned by company insiders.
- Comprehend the various kinds of underwriting contracts and their outcomes for businesses and stakeholders.
Verified Answer
GS
Gabriela SalomonJul 23, 2024
Final Answer :
E
Explanation :
In a firm commitment underwriting, the underwriter agrees to buy the entire issue of securities from the issuer at a set price, and then resells them to the public. This means the issuing firm knows exactly how much money it will receive from the offering upfront, as the underwriter guarantees the purchase of all shares at a predetermined price.
Learning Objectives
- Comprehend the various kinds of underwriting contracts and their outcomes for businesses and stakeholders.