Question

In an initial public offering, the financial intermediary offers two different methods of the IPO process....

In an initial public offering, the financial intermediary offers two different methods of the IPO process. Under firm commitment method they:

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buy the stock from the issuing company upfront at a fixed price and resell the issue to the public.

agree to help the firm sell the stock to the public and promise to make best efforts so sell these at a favorable price.

commit to the issuing firm to buy the leftover stocks at a negotiated price after the IPO

agrees to help the firm sell the stock at a favorable price and finds the best marketing arrangement for the investment-banking firm.

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Answer #1

Firm commitment method is an underwriting act as a dealer the responsibility of unsold stock. For taking this risk the dealer get some profit from negotiated price between purchase price from issuer and public offering price to public. And the firm commitment method compare with best effort and standby commitment basis.

so the correct option is  commit to the issuing firm to buy the leftover stocks at a negotiated price after the IPO agrees to help the firm sell the stock at a favorable price and finds the best marketing arrangement for the investment-banking firm.

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