Chapter 7 Practice Questions
- 1. The lead manager in a public offering typically assists with a “road show” for the offering in each of the following ways except:
- A. Supplying an analyst to answer investor questions during the road show
- B. Helping the issuer create road show presentations
- C. Scheduling road show presentations with interested investors
- D. Helping make sure road show presentations contain required disclosures
- 2. In an underwriting context, the “green shoe” option is best described as:
- A. An option giving the lead manager a future credit for the difference between the public offering price and the price at which the issuer sells the shares to the lead manager
- B. An option allowing the issuer to cancel the offering if the proposed public offering price is more than 5% below a specified amount
- C. An option granted to institutional investors to purchase up to 10% more than the requested allotment of an IPO
- D. An option allowing underwriters to purchase more shares than the amount listed in the prospectus
- 3. Freeman & Co. is the managing underwriter in a follow-on offering by It’s the Yeast You Can Do Inc., a U-bake bread company. Freeman & Co. observes with dismay that the offering is not as popular as anticipated. It prepares to make a stabilizing bid to prevent a decline in the price of ITYYCD’s stock. Which of the following is not true?
- A. The bid may not exceed the offering price.
- B. The bid must be made in the principal market for ITYYCD’s shares.
- C. No bid may be made unless the possibility of a stabilizing bid was disclosed in advance to purchasers.
- D. Freeman & Co. must grant priority to any independent bid at the same price.
- 4. Nosup Foryu is the sole managing underwriter of an IPO of FlavorGrope Inc., a processed food company. FlavorGrope issues 20 million shares at $22 per share. Nosup For