What is the impact of underpricing a securities issue?
A)The underwriter loses while the issuing firm gains.
B)Both the underwriter and the outside investor gains while the issuing firm loses.
C)The outside investor loses while the issuing firm gains.
D)Both the underwriter and the outside investor loses while the issuing firm gains.
E)All three parties lose when the securities are underpriced.

Question

Quizplus · Accepted Answer

Underpricing a securities issue typically results in a loss for the issuing firm because it receives less capital than it potentially could have if the securities were priced accurately. On the other hand, the underwriter may still receive their fees, and outside investors gain because they can buy the securities at a lower price and potentially sell them at a higher market price, realizing a gain.

What Is the Impact of Underpricing a Securities Issue