Asked by Zachary George on Jun 07, 2024
Verified
A red herring is:
A) very volatile and risky.
B) an unapproved prospectus.
C) discloses information approved by the SEC.
D) is given to an investor when a security is sold for the first time.
Red Herring
In financial contexts, a red herring is a preliminary prospectus filed by a company with the SEC, usually in connection with an initial public offering, containing important information but lacking details on price and offering size.
Prospectus
A formal document that companies and mutual funds use to describe the investment offering to potential investors, providing details such as objectives, risks, and financials.
SEC
The U.S. Securities and Exchange Commission, a federal agency tasked with protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation.
- Recognize the role and responsibilities of the Securities and Exchange Commission (SEC) in financial markets.
Verified Answer
KG
Kristen GilrayJun 11, 2024
Final Answer :
B
Explanation :
A red herring is an unofficial preliminary prospectus that a company files with the SEC before a public offering of securities. It contains most of the information about the company and the offering, except for the final offering price and the effective date of the offering. It is called a red herring because it contains a legend in red ink stating that the offering is not yet effective and that no sales can be made until the SEC approves the final prospectus.
Learning Objectives
- Recognize the role and responsibilities of the Securities and Exchange Commission (SEC) in financial markets.