Standby underwriting is a procedure whereby an investment banker agrees to _____ during a rights offer.
A) purchase any shares not sold to rights holders
B) set the subscription price
C) underwrite a new security issue and sell it to the public
D) underwrite all of the firm's future security issues in exchange for a large underwriter's fee

Question

Quizplus · Accepted Answer

Standby underwriting is a process in which an investment banker agrees to purchase any shares not sold to rights holders during a rights offer. This gives the issuer the assurance that the proceeds of the issue will be raised, regardless of whether the current shareholders exercise their rights or not. The investment banker provides this assurance in exchange for a commission.

Standby Underwriting Is a Procedure Whereby an Investment Banker Agrees