SIE Exam Question 270: Answer and Explanation

Question: 270

A significant number of public investors do not have a solid understanding of how common stock is offered to the public. Two methods are the secondary offering and the follow-on offering. Which of the below are true statements regarding these methods?

• A. Secondary offerings involve the sale of new shares other than the first time a company is going public (IPO).
• B. A follow-on is an offering of new shares other than the initial public offering (IPO).
• C. Secondary and Follow-on are two different terms for the same investment banking activity.
• D. Secondary offerings involve the resale of outstanding shares at market bid and ask pricing.

Correct Answer: B

Explanation:

B: The term Secondary Offering is used to describe a situation in which already-issued shares are being resold into the marketplace, usually by insiders, officers, and directors of a company. The shares being sold are NOT new shares coming from the company. A follow-on offering, also called an APO (additional public offering) is where a company is issuing and selling more new shares to the public.