If the firm commitment price is $15 and one million shares are sold in the primary market for $15.50 and then resold in the secondary market for $15.75, what is the underwriter's profit/loss?
A)-$500,000.
B)$500,000.
C)$750,000.
D)-$750,000.
E)0

Question

Quizplus · Accepted Answer

The underwriter's profit is calculated based on the difference between the firm commitment price and the price at which the shares are sold in the primary market. Here, the shares were sold at $15.50 when the firm commitment price was $15. This means the underwriter made a profit of $0.50 per share. With one million shares sold, the total profit is $0.50 * 1,000,000 = $500,000. The resale in the secondary market does not affect the underwriter's profit/loss.

If the Firm Commitment Price Is $15 and One Million