Series 79 practice questioneasyUnderwriting Agreements
In a firm commitment underwriting, who bears the risk of unsold shares?
- AThe issuing company
- BThe investors who submitted indications of interest
- CThe underwriters who agreed to purchase all shares from the issuer✓ Correct answer
- DThe SEC
Explanation
Why C — The underwriters who agreed to purchase all shares from the issuer
In a firm commitment underwriting, the underwriters agree to purchase the entire offering from the issuer at the offering price minus the underwriting discount (spread). This means the underwriters bear the risk of any unsold shares, as they have committed to buying the full amount regardless of investor demand. This is the most common type of underwriting arrangement for IPOs and large public offerings because it provides certainty to the issuer.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Underwriting & New Financing questions
- A small company is conducting a $10 million IPO under a best efforts underwriting arrangement. The underwriter sells…
- Under Rule 430A, what information may be omitted from a prospectus filed as part of the registration statement?
- What distinguishes an all-or-none underwriting from a standard best efforts underwriting?
- What is a 'prospectus supplement' used for in connection with a shelf registration?
- A mini-maxi offering has a minimum of $15 million and a maximum of $30 million. After the offering period, $22 million…
- A company's preliminary prospectus states that it will use 60% of IPO proceeds for acquisitions. After the IPO, the…
- What is the 'underwriting spread'?
- Which of the following is NOT typically required to be disclosed in a prospectus for an IPO?