Question

1- Which of the following statements is false regarding the mechanism of the Dutch auction underwriting

a) The bidder who gives the lowest price has a high probability of buying the company's shares.

b) The bidder who gives the highest price has a low probability of buying the company's shares.

c) The bidder who gives the highest price has a high probability of buying the company's shares.

d) The bidder who gives the lowest price has a low probability of buying the company's shares.

Answer 1

Dutch Auction is a method for pricing of shares in which prices of the shares offered is lowered till it finds the buyers.

So the one who are bidding the highest is almost certain of getting shares because shares are offered in descending order.

So option (B) is FALSE as it states that the bidder who gives the highest price has a low probability of buying the company's shares because the highest bidder will have the highest probability of buying the company's shares.

Rest of the options are true so the correct answer would be (B).