1. Which is INCORRECT about underwriters?

1. Underwriters usually charge a higher spread for smaller deals
2. 7% is a typical IPO spread charged by underwriters.
3. Sometimes when the deal is too big, underwriters can team up to share risk.
4. Underwriters are typically private equity firms that are interested in holding the IPO firms shares for a long time.

1. Which is NOT a potential explanation for IPO short-term underpricing?

1. Underwriters can unload more shares at a lower price.
2. High returns on the first trading day attracts investors.
3. Due to asymmetric information, firms need to lower price so outside investors are willing to invest.
4. Firms want to raise more capital