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SIE Knowledge of Capital Markets Practice Question 30

Question: 30

Which of the following types of underwriting agreements requires the lead underwriter to take responsibility for a certain number of securities in the issue?

Correct Answer: D

Explanation:

D: Choice D is correct because in a firm commitment undertaking, the lead underwriter takes responsibility for all securities in the issue, by buying all shares in the issue, and then re-sells them at a profit to earn compensation. Choices A, B, and C are incorrect because they each specify a sales target, but, while the targets provide incentive, the lead underwriter is not obligated to reach a target.

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