Series 79: Chapter 7 Practice Question Answers

Chapter 7 Practice Question Answers

1. 1. Answer: A. FINRA Rule 2241 prohibits analysts from taking part in road shows in most cases. The remaining answer choices describe typical roles played by the lead manager’s investment bankers.
2. 2. Answer: D. The green shoe option, or over-allotment option, allows underwriters to buy from the issuer more shares than the amount listed in the prospectus. The underwriters can use the option to cover a syndicate short position.
3. 3. Answer: B. Choices A, C, and D all describe requirements imposed by Regulation M, Rule 104 for stabilizing bids made during the restricted period. There is no requirement that stabilizing bids be made in the “principal market” for the stock in question. (The price may not exceed the then-current stabilizing bid price in the principal market; however, even if the bid is made in another market.)
4. 4. Answer: B. The management fee is $0.30 per share, the underwriting fee is $0.30 per share, and the selling concession is $0.90 per share. As the only managing underwriter, Nosup Foryu gets all of the management fee (i.e., the full $0.30 per share). It is also entitled to 40% of the underwriting fee—$0.12 per share—before underwriting expenses are deducted, and to 40% of the selling concessio