Question

When the demand for an initial public offering (IPO) of securities exceeds the number of securities issued, the offering is deemed to be:___________ A) Oversubscribed B) Undersubscribed

Answer 1

Answer:

A) Oversubscribed

Explanation:

An IPO is described as oversubscribed when the demand for the shares on offer exceeds the stock available. The interest in the IPO by investors is very high that the shares on offer cannot meet the demand. The degree of the over-subscription is expressed by a  multiple. For example, Company XYZ shares are oversubscribed two times.

An oversubscribed share will often transact at a higher price when trading begins. A company whose shares have been oversubscribed can take advantage and offer more shares.  Over-subscription contrasts under-subscription, which is a situation of low demand for an IPO that results in some shares not being bought.