Question

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. What is the profit (loss) to the investment banker? a. Profit of $1,000,000. b. Profit of $2,000,000. c. Profit of $7,000,000. d. Loss of $7,500,000. e. Loss of $1,000,000.

Answer 1

Answer:

c. Profit of $7,000,000

Explanation:

the profit will be the difference between revenues and cost In this ase, the amount recieved for the shares and the actual amount paid for them.

we receive 12.5 and we paid each one for 10.50:

11.20 - 10.5 = 70 cents per share

we multiply this by the 10,000,000 shares issued and we get a total of:

7,000,000 gain on sale of bonds to company X