Hollon Securities is underwriting an issue of Llamas Unlimited, Inc. common stock. Hollon will pay LU $45.00 a share and offer the stock to the public at $48.00. The direct cost of underwriting the issue is $1.00 per share. The underwriting spread is
A) $4.00 per share.
B) $3.00 per share.
C) $2.00 per share.
D) not ascertainable from the information above.

Question

Quizplus · Accepted Answer

The underwriting spread is the difference between the price at which the underwriter buys the stock from the issuer ($45.00) and the price at which it is sold to the public ($48.00), which is $3.00 per share.

Hollon Securities Is Underwriting an Issue of Llamas Unlimited, Inc