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Pricing New Securities

I cannot find any help in the textbook for this problem. As I'm taking an online course, finding alternative forms of help proves difficult. Here's the problem:

Explain how the price of a new security is determined.

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A security can be either a stock or a bond. For stocks, new securities are called initial public offerings (IPOs). A company's initial offering price will be set based on the company's market value and the number of its shares outstanding. If the company and its underwriters want to lower or raise the share price, the company can split its shares or effect a reverse split. They may want to do this because low prices that are too low are associated with weak companies, but prices that are too high will make it difficult ...

Solution Summary

Pricing of bonds and initial public offerings (IPOs).