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 the options are correct.

Question

Quizplus · Accepted Answer

Flotation costs refer to the fees paid to underwriters for services such as preparing the prospectus, marketing the securities, and determining the offering price. These fees are significant and cannot be assumed away, making option A incorrect. Option B refers to the difference between the buying and selling price of a security and is not related to flotation costs. Therefore, option C is the correct answer. Option D is incorrect since C is the correct answer.

Flotation Costs Are