Question

4. IPO trading Aa Aa Based on your understanding of the involvement of investment banks in an IPO, complete the following sentences. If the investment bank does not guarantee the sale of the securities, the investment bank is working on deal. Once the investment bank sells the securities, investors must pay the bank within days. If the IPO involves a large amount, investment banks form to distribute and sell the securities. After the SEC approves the registration statement for the IPO, the biggest responsibility for the issuing company and the investment bank becomes ensuring that the determined number of securities is sold and the firm is able to raise the intended amount. The IPO team-including the investment bankers, senior management team, lawyers, and investor relations team-conducts various activities Which of the following statements are true about the activities involved in the IPO process? Check all that apply Investment bankers usually underprice the IPO so that the IPO is oversubscribed and investors who get to participate in the IPO generate high profits. The underwriter selects institutional clients and takes the IPO team on a roadshow to make presentations to these clients across different cities During the roadshow, the IPO team can make forecasts and express their opinions about the projected value of the company after the IPO to lure institutional investors. The investment banker estimates the potential demand for the securities by recording the number of shares that each investor is willing to buy. This is called book-building Suppose Reaping TheBenefits Co. (RTB Co.) is one of the largest investment banking firms on Wall Street VisionStone Corp. hired RTB Co. as the underwriter for its IPO. RTB Co. has set the offering price of the share to $20 per share. The underwriters will charge a 5.4% spread. How many shares must the company sell to net $67 million, ignoring any other expenses? 4,96 million shares 3.35 million shares 4.25 million shares 3.54 million shares Consider the case of LinkedIn Corp.: priced at $45 a share. On the first day of trading, it hit a high of In May 2011, LinkedIn issued its IPO, which was trading at double the price of its IPO $122.70. After six months of its IPO, the company's stock was There are several theories that explain IP0 underpricing. One of them is that most investors who get to purchase the preferred customers of the investment bank, and they became preferred IPO at its are customers by generating lots of commissions in the investment bank's sister brokerage company. Therefore, the IPO to reward its customers for past and future commissions. is an easy way for the

Drop Down Answers:

1. a best efforts or an underwritten

2. 4 or 10

3. a selling group or an unsyndicated group

9. oversubscribed price or offering price

10. underwritten or issuing company

Answer 1

1. best efforts

2. 10

3. a selling group

4. Option 1, 2,4

5. Stock price after spread = 20 * ( 1-5.4%) = 18.92

No of shares = 67,000,000 / 18.92 = 3,541,226.22

Option 3.54 million shares

6. offering price

7. underwritter