Which of the following are indirect costs of issuing securities? I. abnormal returns II. underwriters' spread...

Which of the following are indirect costs of issuing securities? I. abnormal returns II. underwriters' spread III. underpricing IV. legal fees

Expert Solution

Indirect costs are: I. abnormal returns, III. Underpricing.

Underwriter's spread is a gross spread that is paid by the issuer to the underwriter - which is the difference between the offer price and the price issuer receives. This is a direct cost by definition, since this forms as a compensation to the underwriter.

Legal fees is also directly paid for managing the legal aspects of the issuance. Since, it is a payment, it is also a direct expense.

Indirect expenses are not reported on prospectus. They are more economic costs rather than actual cost paid.

Abnormal returns - This generally happens in case of an already public company raising another round of funds through more stock issuances. In a seasoned issue of stock, the price of existing stock drops on average by 3% on announcement of the issue. This is abnormal return. Since, it is not a direct cost paid by company, it is called an indirect cost.

Underpricing - For initial public offerings, the economic losses that arise from selling the stock below the true value is called underpricing.

Clearly, two options refer to compensation/payment being made - direct expenses.

Two options refer to cost from an economic perspective (rather than actual cost) - indirect expenses

jeff jeffy answered 2 years ago

7.Which of the following are costs of issuing new equity? Select one: a. Indirect expenses b....

7.Which of the following are costs of issuing new equity? Select one: a. Indirect expenses b. Overalottment option c. Abnormal returns d. None of the above. e. All of the above. 8.If a firm would like to issue debt but would like to maintain flexibility in the event of financial distress (i.e. so that the debt can be renegotiateD. what type of debt financing is it likely to seek? Select one: a. Publicly issued bonds b. Credit default swaps c....

Which of the following statement is NOT correct? During IPOs, underwriters purchase shares from issuing firms...

Which of the following statement is NOT correct? During IPOs, underwriters purchase shares from issuing firms and resell them Both open-end and close-end fund shares can be traded None of the above There is a decrease in number of IPOs after 2000 Purchases of new issues of stock take place in the primary market

Which of the following statements about the direct/indirect cost classification is NOT true? a. Indirect costs...

Which of the following statements about the direct/indirect cost classification is NOT true? a. Indirect costs are always traced. b. Indirect costs are always allocated. c. The design of operations affects the direct/indirect classification. d. The direct/indirect classification depends on the choice of cost object 15) Which is true on variable costs? a. increase in total when the actual level of activity increases b. are always indirect costs c. include most personnel costs and depreciation on machinery d. can always...

For Each of the following situations, i) Write the Indirect Utility Function ii) Write the Expenditure...

For Each of the following situations, i) Write the Indirect Utility Function ii) Write the Expenditure Function iii) Calculate the Compensating Variation iv) Calculate the Equivalent Variation U(X,Y) = MIN (X, 3Y). M = $40. Initially, PX = 1 and PY = 1. Then the Price of X changes to PX = 3. i) Indirect Utility Function: __________________________ ii) Expenditure Function: ____________________________ iii) CV = ________________ iv) EV = ________________

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the...

Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following? a pool of mortgages b lease payments from the tenants of financied property c loan refinancings d condominium fees e interest only on mortgage loans Wheat is currently selling for $6.15 a bushel while the 3-month futures price is $6.20. Hong Min Suk believes that wheat will actually sell for $6.45 a bushel 3 months from now. Which one of the following positions...

ABC System Case Study on Indirect Assignment and example ? I need examples of indirect costs...

ABC System Case Study on Indirect Assignment and example ? I need examples of indirect costs for ABC theory

5. (i) Do the following functions exhibit increasing, constant, or decreasing returns to scale? (ii) Do...

5. (i) Do the following functions exhibit increasing, constant, or decreasing returns to scale? (ii) Do the following functions exhibit diminishing returns to labor? Capital? Show how you know. a. q = 2L^1.25 + 2K^1.25 b. q = (L + K)^0.7 c. q = 3LK^2 d. q = L^1/2 K^1/2

1. Which of the following costs is considered an indirect cost to its given cost object?...

1. Which of the following costs is considered an indirect cost to its given cost object? a. New plumbing system for a house b. An operation for a family pet c. Rent in a yearly budget d. Wax glaze for an apple e. Cleaning services for an office 2. Toshiba adds completed transformers to their televisions during assembly. The transformers would be considered what types of cost? a. Variable cost and product cost b. Fixed cost and product cost c....

1. You hold a portfolio of securities which have had the following annual returns: {4%, 18%,...

1. You hold a portfolio of securities which have had the following annual returns: {4%, 18%, -22%, 0%, 26%, 10%}. You believe that these returns are normally distributed. What is the probability that the return in any given year will exceed the arithmetic mean? a. 40% b. 55% c. 45% d. 50% 2. You hold a portfolio of securities which have had the following annual returns: {4%, 18%, -22%, 0%, 26%, 10%}. You believe that these returns are normally distributed....

Question (25 Marks) a) Explain the following characteristics of financial asset returns i) Leptokurtosis ii)Volatility Clustering...

Question a) Explain the following characteristics of financial asset returns i) Leptokurtosis ii)Volatility Clustering iii) Leverage effects b) i)Outline the main steps in testing for 'ARCH Effects"in financial Asset returns ii) Explain three limitations of the ARCH (q) models iii) State the stapes in estimating a GARCH Model c) Distinguish between the following extensions to the GARCH Model i) GARCH -M ii) EGARCH iii) GJR-GARCH

Question