Chapter 9 Practice Questions
1. Selle & Profitt is an underwriter involved in the distribution of a follow-on public offering of shares by Techrangutan, a software company. Techrangutan has a public float of $8 million and an average daily trading volume of $85,000. Is Selle & Profitt prohibited from purchasing Techrangutan shares during a restricted period, and if so, for how long before the offering price is determined?
A. No, Selle & Profitt is not subject to a restricted period because Techrangutan’s shares are actively traded securities.
B. No, Selle & Profitt is not subject to a restricted period because Techrangutan’s shares are exempted securities under Section 3 of the Exchange Act.
C. Yes, if the transaction does not fall within a Rule 101 exception; the restricted period begins one business day prior to the determination of the offering price.
D. Yes, if the transaction does not fall within a Rule 101 exception; the restricted period begins five business days prior to the determination of the offering price.
2. A greenshoe option is best described as:
A. An option giving the lead underwriter a future credit for the difference between the public offering price and the price at which the issuer sells the shares to the lead underwriter
B. An option allowing the issuer to cancel the offering if the proposed public offering price is more than 5% below a specified amount
C. An option granted to institutional investors to purchase up to 10% more than the requested allotment of an IPO
D. An option allowing underwriters to purchase more shares than the amount listed in the prospectus
3. Freeman & Co. is the managing underwriter in a follow-on offering by It’s the Yeast You Can Do, Inc., a U-bake bread company. Freeman & Co. observes with dismay that the offering is not as popular as anticipated. It prepares to make a stabilizing bid to prevent a decline in the price of ITYYCD’s stock. Which of the fo