ABC Underwriters paid your firm $33.66 million as IPO proceeds. The IPO offered 2.25 million shares of which 2.02 million were sold at an offering price of $16 a share. The underwriter spread was 6.5%. What type of underwriting was this?

Question

Quizplus · Accepted Answer

The underwriter spread stated in the question suggests a fixed commitment underwriting. In a fixed commitment underwriting, the underwriter agrees to purchase all the shares being offered and sells them to the public at a price determined during the IPO. The underwriter then earns a fixed commission or spread on the sale of the shares. Therefore, the best option is C: fixed commitment.

ABC Underwriters Paid Your Firm $33