In a typical underwriting arrangement, the investment-banking firm I) sells shares to the public via an underwriting syndicate.
II) purchases the securities from the issuing company.
III) assumes the full risk that the shares may not be sold at the offering price.
IV) agrees to help the firm sell the issue to the public but does not actually purchase the securities.
A)I, II, and III
B)I, III, and IV
C)I and IV
D)II and III

Question

Quizplus · Accepted Answer

In a typical underwriting arrangement, the investment-banking firm sells shares to the public via an underwriting syndicate (I). The investment-banking firm also purchases the securities from the issuing company (II). Additionally, the investment-banking firm assumes the full risk that the shares may not be sold at the offering price (III). Therefore, the correct options are I, II, and III. Option IV is incorrect as it is not a typical underwriting arrangement, but rather a different type of arrangement called a best efforts underwriting.

In a Typical Underwriting Arrangement, the Investment-Banking Firm I) Sells