How many shares would it purchase

Reference no: EM132178287

Question - A company goes public with an offering price of $18. There is a 7 percent underwriting spread. There is also a 15 percent overallotment option. The company is selling 25 mil-lion shares. The underwriter fills orders for 28.75 million shares but has not exercised the overallotment option. The stock rises to $20. How much would it cost the underwriter to cover the short position? If the underwriter used all its profits from the short position to purchase shares, how many shares would it purchase (include the shares that must be purchased to cover the short position)?

Reference no: EM132178287

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