With a firm commitment underwriting,an investment bank agrees to sell 2 million shares to the public at $10 per share with a spread of $1.How much does the issuing company receive if only 1.5 million shares are sold?
A)$20.0 million
B)$18.0 million
C)$15.0 million
D)$13.5 million

Question

Quizplus · Accepted Answer

In a firm commitment underwriting, the investment bank buys all the shares from the issuing company at the agreed price, regardless of how many shares are sold to the public. The issuing company receives the full amount for 2 million shares at $9 per share (after the $1 spread), totaling $18 million.

With a Firm Commitment Underwriting,an Investment Bank Agrees to Sell