Question

The ABCDE Co. recently raised several million dollars in an initial public offering. XYZ received $22 per share from the underwriter, the offering price was $25 per share, and the market price rose to $28 on the first day of trading. The spread paid by the underwriter was _______.

A) 12.0%
B) 13.6%
C) 24.0%
D) 27.3%
E) 28.0%

Answer 1

To calculate the spread paid by the underwriter, we need to find the difference between the amount received by XYZ from the underwriter ($22) and the offering price ($25), then divide that difference by the offering price and multiply by 100% to express the spread as a percentage.

The spread paid by the underwriter can be calculated as follows:

Spread = [(Offering Price - Underwriter Price) / Offering Price] x 100%

Spread = [(25 - 22) / 25] x 100%

Spread = 3 / 25 x 100%

Spread = 12%

Therefore, the answer is A) 12.0%.