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Ch 18: Assignment - Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks Attempts Average / 4 4. IPO trading Based on your understanding of the involvement of investment banks in an IPO, complete the following sentences. If the investment bank does not guarantee the sale of the securities, the investment bank is working on a best efforts deal. Once the investment bank sells the securities, investors must pay the bank within 10 days. If the IPO involves a large amount, investment banks form a selling group to distribute and sell the securities. After the SEC approves the registration statement for the IPO, the biggest responsibility for the issuing company and the investment bank becomes ensuring that the determined number of securities is sold and the firm is able to raise the intended amount. The IPO team-including the investment bankers, senior management team, lawyers, and investor relations team-conducts various activities. Which of the following statements are true about the activities involved in the IPO process? Check all that apply. If the investment bankers in the book-building process realize that the demand for the securities is low, they can either reduce the offering price or consider withdrawing the IPO. The IPO team goes on a roadshow, making presentations to institutional investors selected by the underwriter. During the roadshow, the IPO team can divulge additional information to institutional investors that is not given in the registration statement to lure the institutional investors. Issuing firms mostly allow underpricing of their IPO because the company wants to create excitement and have a successful IPO, which would help the company in future offerings. Suppose Reaping The Benefits Co. (RTB Co.) is one of the largest investment banking firms on Wall Street. Vision Stone Corp. hired RTB Co. as the underwriter for its IPO. RTB Co. has set the offering price of the share to $30 per share. The underwriters will charge a 4.6% spread. How many shares must the company sell to net $87 million, ignoring any other expenses? 0 2.90 million shares 03.04 million shares 0 4.26 million shares 0 3.65 million shares Consider the case of LinkedIn Corp.: In May 2011, LinkedIn issued its IPO, which was priced at $45 a share. On the first day of trading, it hit a high of $122.70. After six months of its IPO, the company's stock was trading at double the price of its IPO. that underpricing increases the likelihood of oversubscription, which There are several theories that explain IPO underpricing. One of them reduces the risk to the underwriter. Grade It Now Save & Continue Continue without saving
