If an investment firm underwrites a stock issue the
A) risk of being unable to sell the shares stays with the issuing corporation.
B) corporation obtains cash immediately from the investment firm.
C) investment firm has guaranteed profits on the sale of the stock.
D) issuance of stock is likely to be directly to creditors.

Question

Quizplus · Accepted Answer

Underwriting a stock issue means that an investment firm agrees to purchase all the shares of the stock from the issuing corporation and then resells them to the public. This means that the corporation obtains cash immediately from the investment firm, which is the main benefit of underwriting. The risk of being unable to sell the shares stays with the investment firm, not the corporation. The investment firm also does not have guaranteed profits on the sale of the stock, as the stock price can fluctuate. The issuance of stock is not likely to be directly to creditors.

If an Investment Firm Underwrites a Stock Issue the