Chapter 13

Question 1

A corporation wants to sell $10,000,000 of stock, but the syndicate is only able to sell $8,000,000 of it. The syndicate members absorb the $2,000,000 of unsold stock for their own accounts. This is an example of a:

Answer 1

Firm commitment underwriting

Question 2

A corporation wants to sell $10,000,000 of stock, but the syndicate is only able to sell $8,000,000 of it. The syndicate would return the $2,000,000 of unsold stock to the corporation. This is an example of a:

Answer 2

Best-Efforts Underwriting

Question 3

A corporation intends to sell $10,000,000 of stock. Based on company capital needs, it requires at least 70% of the offering be sold or the entire issue will be cancelled. Once that has been reached, underwriters will continue to sell the remaining 30%. This is known as a(n):

Answer 3

Mini-maxi underwriting