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Question

What does the greenshoe option refer to in an IPO underwriting agreement?

A The right of the issuer to buy back shares from investors Correct Answer Incorrect Answer
B The option for investors to purchase additional shares at a discounted price Correct Answer Incorrect Answer
C The underwriter's right to sell more shares than initially planned in case of high demand Correct Answer Incorrect Answer
D The option for the underwriter to delay the IPO Correct Answer Incorrect Answer
E The right of existing shareholders to participate in the IPO at a premium price Correct Answer Incorrect Answer

Solution

The greenshoe option refers to a clause used in an underwriting agreement during an IPO wherein this provision provides a right to the underwriter to sell more shares to the investors than an issuer planned if demand is higher than expected for the security issued.

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