Series 79 – Investment Banking Representative Exam Capital Markets & Underwriting

Question 1

In an IPO, what is the role of the 'bookrunner'?

Accepted Answer

The lead underwriter responsible for building the order book and allocating shares

Answer

The attorney who drafts the registration statement

Answer

The SEC examiner reviewing the prospectus

Answer

The exchange specialist who sets the opening price

Question 2

What is the primary purpose of the SEC's 'quiet period' (or 'lock-up' on communications) surrounding an IPO?

Accepted Answer

To restrict promotional communications that could constitute an illegal offer of securities before the registration is effective

Answer

To prevent insider trading by company executives after the IPO

Answer

To allow the underwriter to stabilize the stock price

Answer

To give competing underwriters time to submit bids

Question 3

In a 'firm commitment' underwriting, the underwriter:

Accepted Answer

Purchases all the offered securities from the issuer and bears the risk of reselling them

Answer

Agrees to sell as many shares as possible but returns unsold shares to the issuer

Answer

Acts only as a placement agent and earns a commission on shares sold

Answer

Provides a bridge loan to the issuer until the offering closes

Question 4

What is a 'greenshoe option' (overallotment option) in an IPO?

Accepted Answer

An option allowing underwriters to sell up to 15% more shares than originally planned to support the stock price

Answer

An option granted to management to buy shares at the IPO price

Answer

A put option allowing investors to return shares within 30 days

Answer

A price reset mechanism if the stock falls below the IPO price

Question 5

Under SEC Regulation S-K, a company's IPO prospectus must include:

Accepted Answer

Audited financial statements for the prior two to three years plus interim unaudited financials

Answer

Only audited financial statements for the prior fiscal year

Answer

Pro forma financials only

Answer

Five years of tax returns

Question 6

A 'secondary offering' differs from a primary offering in that:

Accepted Answer

Existing shareholders sell their shares, and the company receives no proceeds

Answer

It can only occur within 12 months of the IPO

Answer

It requires a new S-1 registration statement

Answer

It is limited to institutional investors