Flotation costs are:
A)insignificant and can be assumed away.
B)the difference between the bid-ask spread on the sale of the security.
C)commissions to the underwriting firm that floats the issue.
D)None of these answers are correct.

Question

Quizplus · Accepted Answer

Flotation costs refer to the expenses associated with issuing securities, including underwriting fees, legal fees, printing costs, registration and filing fees, and accounting fees. These costs are not insignificant and cannot be assumed away. The bid-ask spread is the difference between the highest price a buyer is willing to pay for a security and the lowest price a seller is willing to accept, and it is not the same as flotation costs. Therefore, option C is the correct answer.

Flotation Costs Are