Because there is more uncertainty involved in the initial market reaction to common stock, a larger "underwriting spread" often exists for stocks, compared to other types of offerings.

Question

Quizplus · Accepted Answer

This is true. The underwriting spread is the difference between the price the underwriter pays to the issuer for the securities and the price at which the underwriter sells the securities to the public. The greater uncertainty associated with initial market reaction to common stock often leads to larger underwriting spreads.

Because There Is More Uncertainty Involved in the Initial Market