If the firm commitment price is $15 and one million shares are sold in the primary market for $13 and then resold in the secondary market for $13.25, what is the underwriter's profit/loss?
A)-$2,000,000.
B)$2,000,000.
C)-$1,750,000.
D)$1,750,000.
E)0

Question

Quizplus · Accepted Answer

The underwriter's profit or loss is determined by the difference between the firm commitment price and the price at which the shares are sold in the primary market. Here, the firm commitment price is $15, but the shares are sold for $13, resulting in a loss of $2 per share. With one million shares sold, the total loss is $2 million. Transactions in the secondary market do not affect the underwriter's profit or loss.

If the Firm Commitment Price Is $15 and One Million