A preliminary document provided to investors who are interested in a stock offering is called a(n):
A)prospectus.
B)inquiry form.
C)draft offer.
D)green shoe.
E)red herring.

Question

Quizplus · Accepted Answer

A red herring is a preliminary document provided to potential investors to gauge their interest in a stock offering. It includes information about the company and the proposed offering, but it is not yet complete, and certain details may change before the final prospectus is issued. The term comes from the fact that the document includes a disclaimer, stating that the information is not complete and should not be relied upon as the basis for an investment decision – thereby serving as a “red herring” to warn investors that they need to wait for more complete information before making a decision.

A Preliminary Document Provided to Investors Who Are Interested in a Stock