Day: February 9, 2025

Which of the following forms of new share issues would normally be underwritten?

Select ONE answer:

1. Introduction
2. Offer for sale by tender
3. Placing
4. Rights issue

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct == > No new shares are issued in an introduction and so there is no need to underwrite. An offer for sale by tender would not normally need underwriting since the issue price reflects the value of the shares as perceived by the market. Underwriting would only be necessary if there is a risk that there will be under-subscription even at the minimum price. It is unnecessary to underwrite a placing since a purchaser for the shares is arranged in the issue process. Although a rights issue should not need underwriting in theory, since all the shares are being offered to existing shareholders, in practice it will usually be underwritten. This is to ensure that sufficient funds are raised from the issue, even if the rights are not fully exercised.

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