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Explain how the price of a new security is determined

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Explain to me how the price of a new security is determined?

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Solution Summary

In a 425 word discussion, the procedure for the process of issuing new public stock offerings (IPOs) is discussed in detail which includes the setting the price, which might be the toughest part of the process. The explanation is given in 441 words.

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Problem: Explain to me how the price of a new security is determined?

The SEC procedures for the process of issuing new public stock offerings (IPOs) is highly regulated, complicated and date sensitive. For a definition of many of the terms involved in the process, you can refer to the following site:
http://personal.fidelity.com/products/stocksbonds/content/ipoglossary.html

The determination of the issue price is more of a marketing job. The underwriting firm(s) will float the issue by either agreeing to sell the stock on behalf of the company or by actually buying the stock for a negotiated price (usually discounted to the expected market price) from the ...

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