The BB Drum Co. recently raised several million dollars in an initial public offering. BB received $22 per share from the underwriter, the offering price was $25 per share, and the market price rose to
$28 on the ﬁrst day of trading. The spread paid by BB was _______.

Question

Quizplus · Accepted Answer

The spread paid by BB is the difference between the underwriter's price and the offering price, expressed as a percentage of the offering price:

Spread = (Offering price - Underwriter's price) / Offering price

Spread = (25 - 22) / 25 = 0.12 or 12%

Therefore, the correct answer is B) 13.6% (which is not an option in this question - this may be a mistake).