ML Underwriters paid an issuer $37,694,528 as IPO proceeds.The IPO offered 1.86 million shares of which 1.835 million were sold at an offer price of $21.85 a share.The underwriting spread was 7.25 percent.What type of underwriting was this?

Question

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Number of shares = [$37,694,528 / (1 − 0.0725)] / $21.85 = 1,860,000 shares. This was a firm commitment underwriting since the issuer was paid for all of the shares, even though the underwriter did not sell the entire issue.

ML Underwriters Paid an Issuer $37,694,528 as IPO Proceeds