Montreal Dealers Inc.(MD), a Canadian underwriting firm, has just underwritten an issue by PublicDomaine.com, and the total proceeds of the issue are $15 million.MD charges an underwriting fee of 4 percent.MD bought the 1,000,000 shares from PublicDomaine for $12 and sold them to the public for $15 each.What is the total compensation MD obtained?

Question

Quizplus · Accepted Answer

MD bought 1,000,000 shares for $12 and sold them to the public for $15 each, which means the total revenue generated by the underwriting is 1,000,000 * $15 = $15,000,000.

MD charges an underwriting fee of 4%, which means their compensation is 4% * $15,000,000 = $600,000.

In addition to the underwriting fee, MD also received a profit from buying the shares at $12 and selling them for $15, which is $15 - $12 = $3 per share. The total profit on 1,000,000 shares is $3 * 1,000,000 = $3,000,000.

Therefore, the total compensation MD obtained is $600,000 (underwriting fee) + $3,000,000 (profit from buying and selling shares) = $3,600,000. Hence, the answer is D.