Why does underpricing always occur for an IPO?
A)to guarantee sales by underwriters
B)to discourage oversubscription from investors
C)to reward customers by issuers
D)to protect investors from deceptive firms

Question

Quizplus · Accepted Answer

Underwriters have a responsibility to sell the IPO shares to investors, and underpricing the shares is a way to guarantee sales. This is because underpriced shares are more attractive to investors and often experience a significant price increase on the first day of trading, which means that the underwriters can sell the shares for a profit even though they were sold at a discount initially.

Why Does Underpricing Always Occur for an IPO