When investment bankers act in the function of "underwriters," they
A) give a "firm commitment" to purchase the securities from the corporation at a set price.
B) guarantee that the company will not suffer a decline in earnings after taxes.
C) are allowed to sell as many securities as possible and return the rest unsold.
D) are allowed to give advice to the company's management.

Question

Quizplus · Accepted Answer

When investment bankers act as underwriters, they give a "firm commitment" to purchase securities from the corporation at a set price, which means they assume the risk of selling the securities to investors. This is different from an "all or nothing" commitment, where they can sell as many securities as possible and return the rest unsold. Underwriters do not guarantee the company's performance, nor are they allowed to give advice to the company's management.

When Investment Bankers Act in the Function of "Underwriters," They