Asked by Nazmi Olcar on May 28, 2024
Verified
Recently, an underwriter completed a sale of stock in an over-subscription. The underwriter can purchase additional shares at the offering price less fees and commissions if there is
A) A red herring.
B) A Green Shoe provision.
C) An aftermarket.
D) A registration period.
E) A moratorium.
Green Shoe Provision
An option that allows underwriters to buy and sell additional shares if the demand exceeds expectations during an IPO.
Over-subscription
Occurs when the demand for a stock or other security exceeds the available supply during an initial public offering or other issuance.
Offering Price
The price at which a company's shares are offered to the public for the first time in an Initial Public Offering (IPO) or the price at which any financial security is available for sale.
- Distinguish between different kinds of offerings and the methods of underwriting deployed in financial markets.
- Comprehend the function and impacts of mechanisms like the Green Shoe option in the offering of securities.
Verified Answer
AS
Amirul ShahiranMay 30, 2024
Final Answer :
B
Explanation :
A Green Shoe provision allows an underwriter to purchase additional shares at the offering price less fees and commissions in the event of an over-subscription, providing a mechanism to stabilize the stock price after the offering.
Learning Objectives
- Distinguish between different kinds of offerings and the methods of underwriting deployed in financial markets.
- Comprehend the function and impacts of mechanisms like the Green Shoe option in the offering of securities.