4. IPO trading Based on your understanding of the involvement of investment bank

Question

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 days. If the IPO involves a large amount, investment banks form Aa Aa deal. Once the investment bank sells the securities, investors must pay the bank within 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 The IPO team goes on a roadshow, making presentations to institutional investors selected by the underwriter. 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. Investment bankers usually underprice the IPO so that the IPO is oversubscribed and investors who get to participate in the IPO generate high profits. 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

Explanation / Answer

1. Best Efforts deal

2. 10

3. an unsyndicated group

The second sentence about book-building process is True

All other sentences are false as therfe is no road show and invetment bankers

Essentially, investment banks serve as middlemen between a company and investors when the company wants to issue stock or bonds. The investment bank assists with pricing financial instruments to maximize revenue and with navigating regulatory requirements. Often, when a company holds its initial public offering (IPO), an investment bank will buy all or much of that company’s shares directly from the company. Subsequently, as a proxy for the company holding the IPO, the investment bank will sell the shares on the market. This makes things much easier for the company itself, as they effectively contract out the IPO to the investment bank.

Moreover, the investment bank stands to make a profit, as it will generally price its shares at a markup from the price it initially paid. In doing so, it also takes on a substantial amount of risk. Though experienced analysts use their expertise to accurately price the stock as best they can, the investment bank can lose money on the deal if it turns out they have overvalued the stock, as in this case they will often have to sell the stock for less than they initially paid for it.

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