Part 1 (ch24)

Mark T (True) or F (False) in each of the following sentences.

1 An underwriter is an investment bank that manages the IPO process and helps the company sell its stock.

2 An initial public offering (IPO) is not necessarily the first time a company sells its stock to the public.

3 Underwriters face no risk during an IPO, so that a greenshoe provision is usually not necessary.

4 New issues are highly cyclical.

5 The transaction costs of an IPO are usually low.

6 IPOs are underpriced on average.

7 A seasoned equity offering (SEO) is the sale of stock by a company that is already publicly traded.

8 A cash offer occurs when new shares are offered only to existing shareholders.

9 A rights offer occurs when new shares are sold to investors at large.

10 The stock price reaction to an SEO is positive on average.

11 Bookbuilding is a common method used by underwriters to determine the IPO price.

12 Investors in an IPO are guaranteed to receive shares at the offering price.

13 Lock-up periods restrict company insiders from selling their shares immediately after an IPO.

14 A roadshow is a series of presentations made by company executives to potential investors.

15 In a greenshoe option, underwriters buy shares back from the market to stabilize the stock price.

16 IPO allocation refers to the process of distributing shares to various investors.

17 Quiet period is a term used to describe the period after an IPO when company executives cannot communicate with the public.

18 The secondary market involves the trading of existing shares among investors.

19 Market capitalization is a measure of a company’s value, calculated by multiplying its stock price by the number of outstanding shares.

20 The lock-up period for insiders typically lasts for a short duration, usually a week.

21 Dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders.

22 The primary market involves the buying and selling of existing shares among investors.

23 Underwriters in an IPO often form a syndicate to share the responsibility of selling the new issue.