An underwriting syndicate agreed to sell a new issue of 500,000 shares of common stock for the Bravo Corporation. It estimated that the stock would sell for $35 a share, and the syndicate
Agreed to pay Bravo $34.50 a share. Fixed expenses incurred by the syndicate were $60,000.
When the stock was brought to market, the shares sold for $34.625. What was the syndicate's
Gain or loss on this transaction?

Question

Quizplus · Accepted Answer

The syndicate sold the shares at $34.625 each, slightly above the $34.50 they agreed to pay Bravo Corporation. The gain per share is $34.625 - $34.50 = $0.125. For 500,000 shares, the total gain is $0.125 * 500,000 = $62,500. After subtracting the fixed expenses of $60,000, the net gain is $62,500 - $60,000 = $2,500.

An Underwriting Syndicate Agreed to Sell a New Issue of 500,000