Series 79 practice questioneasyUnderwriting Agreements
What is the 'underwriting spread'?
- AThe difference between the bid and ask price of shares on the secondary market
- BThe fee paid to the SEC for processing the registration statement
- CThe total amount of shares available in the offering
- DThe difference between the price paid by the underwriter to the issuer and the public offering price✓ Correct answer
Explanation
Why D — The difference between the price paid by the underwriter to the issuer and the public offering price
The underwriting spread (also called the underwriting discount or gross spread) is the difference between the public offering price and the price the underwriters pay to the issuer for the securities. This spread compensates the underwriters for their services and is typically divided into three components: the management fee, the underwriting fee, and the selling concession. For IPOs, the gross spread is commonly around 7% for deals under $1 billion.
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