D.L.Jones & Co.recently went public.The firm received $20.80 a share on the entire offer of 25,000 shares.Keeser & Co.served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share.What type of underwriting was this?

Question

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This is a firm commitment underwriting, in which Keeser & Co. agreed to purchase the entire 25,000 shares from DL Jones & Co. at a specified offer price, and then sold 23,700 shares to the public at a higher price of $22 per share, earning a spread of $0.20 per share. The fact that all shares were ultimately sold to the public indicates that there was sufficient demand for the stock.

DLJones & Co