A company is going public with an offering price of $27 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

Question

Quizplus · Accepted Answer

The gross spread is the difference between the offering price and the amount that the underwriter pays to the issuing firm per share.

In this case, the underwriter pays the issuing firm $27 x (1-0.07) = $25.11 per share.

Therefore, the underwriter will receive $27 x 0.07 = $1.89 per share.

So, the bank will receive $1.89 per share, and the issuing firm will receive $25.11 per share.

A Company Is Going Public with an Offering Price of $27