Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 5: 3DQ (page 493)

Discuss how an underwriting syndicate decreases risk for each underwriter and at the same time facilitates the distribution process.

Short Answer

Expert verified

An underwriting syndicate creates other investment houses that act as wholesalers, sell shares to the public, and reduces risks.

Step by step solution

01

Underwriter syndicate

An underwriter syndicate refers to a group ofinvestment bankers or brokers and dealers created for a specific purpose, such as selling new issues of the company.

02

Risk minimization by an underwriter syndicate

The underwriter brings in more investment bankers, and the distribution of money spreads the risk out. Further, investment bankers call other investment houses for sharing and distributing the investment.

Each investment house formed by the syndicate plays the role of wholesaler and distributes shares further to brokers and dealers.

In the end, brokers and dealers sell the share to the public, so therisk decreases.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Discuss the relationship between bond prices and interest rates. What impact do changing interest rates have on the price of long-term bonds versus short-term bonds? (LO16-2)

Tyson Iron Works is about to go public. It currently has after-tax earnings of \(4,400,000, and 4,200,000 shares are owned by the present stockholders. The new public issue will represent 500,000 new shares. The new shares will be priced to the public at \)25 per share with a 3 percent spread on the offering price. There will also be $280,000 in out-of-pocket costs to the corporation.

e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 10 percent increase in earnings per share during the year of going public.

If a company were looking for capital by way of a private placement, where would it look for funds?

The Presley Corporation is about to go public. It currently has after-tax earnings of \(7,200,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 800,000 new shares. The new shares will be priced to the public at \)25 per share, with a 5 percent spread on the offering price. There will also be $260,000 in out-of-pocket costs to the corporation.

e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 5 percent increase in earnings per share during the year of going public.

Do corporations rely more on external or internal funds as sources of financing?
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Communication

Read Explanation

Human Resources

Read Explanation

Change Management

Read Explanation

Intermediate Accounting

Read Explanation

Business Case Studies

Read Explanation

Financial Performance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free