Question

Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities. Which one of the following might the firm consider to address this uncertainty?

a. Extended quiet period
b. Dutch auction underwriting
c. Best efforts underwriting
d. Extended lockup period
e. Standby underwriting

Answer 1

b. Dutch auction underwriting. Dutch auction underwriting can address the uncertainty of underwriters setting the most optimal offer price for securities.

Step-by-step explanation:

The firm could consider dutch auction underwriting to address the uncertainty of underwriters setting the most optimal offer price for the securities. In a dutch auction, potential investors specify the number of shares they are willing to buy and the price they are willing to pay. The price is then determined based on the highest price that allows all the shares to be sold. This method allows the market to determine the price, potentially resulting in a more optimal offer price.