In regards to the cost of issuing securities, underpricing for ﬁrm commitment offers is typically larger
than for best efforts.

Question

Quizplus · Accepted Answer

This statement is true. Firm commitment offers involve the underwriter purchasing the securities from the issuer and then selling them to investors, therefore the underpricing tends to be larger to ensure that the underwriter can still make a profit. In contrast, best efforts offers involve the underwriter only acting as an agent to help facilitate the sale of securities and there is less risk involved.

In Regards to the Cost of Issuing Securities, Underpricing for ﬁRm