CFA Level I · CFA Level I Exam · Equity Issuance and Trading
Firm X completes an IPO of 10 million new shares at 20.00 each, with an underwriting spread of 5%. Existing holders also sell 2 million shares in the offering at the same price and spread, and the issuer pays no other costs. The net proceeds received by Firm X are closest to:
Net proceeds to the issuer are about 190 million. Only the 10 million new shares raise money for the firm, giving 200 million gross, and the 5% underwriting spread removes 10 million. Proceeds from the 2 million shares sold by existing holders go to those holders.
- A190 millionCorrect
- B200 million
- C228 million
Explanation
Only the 10 million new shares generate proceeds for the issuer: 10m × 20 = 200m gross. Less 5% spread (10m) gives 190m. The 200m ignores the spread; 228m wrongly includes the selling shareholders' 2m shares (240m gross less 5% = 228m).
Did you get it right without looking?
One question tells you little. A timed set on Equity Issuance and Trading shows your real accuracy, how long you take and where you lose marks.
More Equity Issuance and Trading questions
- A researcher finds that small-capitalization stocks earned higher average returns in January than in other months, but the effect disappears…
- A portfolio manager must sell a very large block of a thinly traded stock and wants to reduce the risk of revealing the full order size to t…
- An index provider constructs an equal-weighted index of 50 stocks and rebalances it quarterly. Compared with a market-capitalization-weighte…
- The current best bid is 20.10 and the best offer is 20.14. A trader submits a limit buy order for 1,000 shares at 20.16 and a second limit b…
- An investor sells shares short and the share price subsequently rises sharply. Compared with an investor holding a long position in the same…
- Which of the following is the most likely reason an investor seeking to sell a very large block of a thinly traded stock would use a brokere…