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Chapter 5: 1DQ (page 493)

In what way is an investment banker a risk taker?

Short Answer

Expert verified

An investment banker immediately acquires the securities and assumes all associated risk.

Step by step solution

01

Investment banker

Investment bankers are professionals who serve their clients in raising capital and assist them in the case of mergers and acquisitions.

02

Investment banker as a risk taker

When raising capital for a client, an investment banker immediately buys the securities such as bonds and stocks.

The risk of changing rates is there in such a scenario that occurs due to the time gap between buying and selling securities.

In such a way, an investment banker is a risk-taker.

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Most popular questions from this chapter

Do corporations rely more on external or internal funds as sources of financing?

The Presley Corporation is about to go public. It currently has after-tax earnings of \(7,200,000, and 2,100,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 800,000 new shares. The new shares will be priced to the public at \)25 per share, with a 5 percent spread on the offering price. There will also be $260,000 in out-of-pocket costs to the corporation.

a. Compute the net proceeds to the Presley Corporation.

Why is secondary trading in the security markets important?

Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is \(23 per share. Other syndicate members may buy the stock for \)24.25. The price to the selected dealers group is \(24.80, with a price to brokers of \)25.20. Finally, the price to the public is $29.50.

  1. If Walton and Company sells its shares to the dealer group, what will the percentage return be?
  2. If Walton and Company performs the dealer鈥檚 function also and sells to brokers, what will the percentage return be?
  3. If Walton and Company fully integrates its operation and sells directly to the public, what will its percentage return be?

What was the purpose of the Sarbanes-Oxley Act of 2002?
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