An FI is underwriting the sale of 1 million shares of Ultrasonics, Inc., and is quoting a bid-ask price of $6.00-$6.50.
a. What are the fees earned by the FI if a firm commitment method is used to underwrite the securities?
b. What are the fees if the FI uses the best-efforts method and a commission of 50 basis points is charged?
c. How would your answer be affected if the FI manages to sell the shares only at $5.50 using the firm commitment method? The commission for best efforts is still 50 basis points.