Answers

1. 1. ANSWER: D. Rationale: A “best efforts” underwriting is a commitment to sell all the shares or cancel the offering (all or none) or to sell some minimum amount (mini-max) or cancel. Best effort is not a guarantee to sell but a money-back guarantee if they don’t.
2. 2. ANSWER: A. Rationale: Registered secondary offerings are sales of already issued stock where one or more major stockholders sell all or part of their positions through an underwriter. The insider selling the securities would therefore receive the proceeds directly less underwriting fees.
3. 3. ANSWER: D. Rationale: Most well-established corporations that issue common stock are C-corporations. An S-corp is an entity developed to help small corporations for tax purposes and is limited to 100 shareholders. A limited liability company (LLC) is created for a limited duration to serve a single purpose. It does not issue stock, and ownership is not freely transferable. A limited partnership also has a limited life and does not issue stock, although it does offer “units” of ownership that are freely traded.
4. 4. ANSWER: B. Rationale: Shelf offerings allow issuers to sell their offerings at any time over a three-year period. WKSIs may file an automatic shelf offering, which does not require SEC review.
5. 5. ANSWER: D. Rationale: Red herring is another term for the preliminary prospectus.
6. 6. ANSWER: C. Rationale: The managing underwriter’s fee, the underwriting fee, and the selling concession are the components of the spread in the underwriting of a securities issue. The coupon has to do with interest payments on a bond.
7. 7. ANSWER: D. Rationale: An S-corporation is a so-called “pass through” entity that allows shareholders to avoid double-taxation on their gains by reporting profits and losses on their individual tax returns. However, to be recognized by the IRS as an S-corporation, the entity can have no more than 100 shareholders and none of the shareholders may