With firm commitment underwriting, the issuing firm:
A) is unsure of the total amount of funds it will receive until after the offering is completed.
B) is unsure of the number of shares it will actually issue until after the offering is completed.
C) knows exactly how many shares will be purchased by the general public during the offer period.
D) retains the financial risk associated with unsold shares.
E) knows upfront the amount of money it will receive from the stock offering.

Question

Quizplus · Accepted Answer

With firm commitment underwriting, the underwriter guarantees to purchase all of the shares being offered by the issuing firm, and then resells them to the public. This means that the issuing firm knows upfront the exact amount of money it will receive from the stock offering, and does not retain the financial risk associated with unsold shares. Therefore, the correct answer is E.

With Firm Commitment Underwriting, the Issuing Firm