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Question

Which of the following statements about IPOs is/are correct?  

It provides a company access to funds through the public capital market.

Companies issue IPOs to raise funds from the public and become publicly traded companies.

In a book-building issue, the exact price of the share is unknown, but investors are given a price band or range.

A 1 and 2 only Correct Answer Incorrect Answer
B 1 and 3 only Correct Answer Incorrect Answer
C 2 and 3 only Correct Answer Incorrect Answer
D 1, 2 and 3 Correct Answer Incorrect Answer
E 3 only Correct Answer Incorrect Answer

Solution

Explanation: Statement 1 is correct as it provides a company access to funds through the public capital market. Statement 2 is also correct as companies issue IPOs to raise funds from the public and become publicly traded companies.   Here are the key differentiating factors between the two types of IPO. Price: In a fixed price issue, the price of the shares is fixed before the issue. In a book-building issue, the exact price of the share is unknown, but investors are given a price band or range within which they can place bids.

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