M.Com Previous (UOP) Under writing (chp 18) Solutions Part II

1. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 1
Underwriting:
Underwritingisthe processbywhichAgentsraise investmentcapital frominvestorsonbehalf of
corporationsthatare issuingsecurities(bothSharesanddebentures).
Firm Underwriting:
In a firmunderwriting,the underwriterguaranteestopurchase all of the shares beingofferedfor
sale bythe Company regardlessof whetherornottheycan sell themtoinvestors.A firm
underwritingagreementisthe mostdesirablefor the Company because itguaranteesthemall of
theirmoneyrightaway.The more in demandthe offeringis,the more likelyitisthatit will be done
on a firmcommitmentbasis.Inafirmcommitment,the underwriterputstheirownmoneyatriskif
theycan’t sell the securitiestoinvestors.
Q1:- solution:
Statement showing liability of each underwriter
Working Notes:
*Unmarked Applications:
A: 22500 * 50 /100 = 11250
B: 22500 * 25 / 100 = 5625
C: 22500 * 25 / 100 = 5625
A
(50%)
B
(25%)
C
(25%) Total
Gross Liability 37500 18750 18750 75000
less: Marked Applications (15000) (7500) (15000) (37500)
22500 11250 3750 37500
less:
Un Marked
Applications *
(onGross liability%age) (11250) (5625) (5625) (22500)
ResultantLiability 11250 5625 (1875) 15000
less:
Surplusof ” C” **
(onGross liability%age) (1250) (625) 1875 ---
NetLiability 10000 5000 NIL 15000

2. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 2
** Surplus of C:
A : B
50 : 25
1875 * 50 / 75 : 1875 * 25 / 75
1250 : 625
Q 4:- Solution:
Statement showing liability of each underwriter
Working Notes:
*Unmarked Applications:
Alpha: 150000 * 40 /100 = 60000
Beta: 150000 * 40 /100 = 60000
Zeta: 150000 * 20 /100 = 30000
Alpha
(40%)
Beta
(40%)
Zeta
(20%) Total
Gross Liability 100000 100000 500000 2500000
less: Marked Applications 1300000 700000 250000 2250000
(300000) 300000 250000 250000
less:
Un Marked
Applications *
(onGross liability%age) (60000) (60000) (30000) (150000)
ResultantLiability (360000) 240000 220000 100000
less:
Surplusof ” Alpha” **
(onGross liability%age) 360000 (240000) (120000) -------
NetLiability NIL . NIL . 100000 100000

3. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 3
** Surplus of Alpha:
Beta : Zeta
40 : 20
360000 * 40 / 60 : 360000 * 20 / 60
240000 : 120000
Q 5:- Solution:
Statement showing liability of each underwriter
Working Notes:
*Unmarked Applications:
A: 200000 * 30 /100 = 60000
B: 200000 * 30 /100 = 60000
C: 200000 * 40 /100 = 80000
A
(30%)
B
(30%)
C
(40%) Total
Gross Liability 750000 750000 100000 2500000
less: Marked Applications (350000) (400000) (1350000) (2100000)
400000 350000 (350000) 400000
less:
Un Marked
Applications *
(onGross liability%age) (60000) (60000) (80000) (200000)
ResultantLiability 340000 290000 (430000) 200000
less:
Surplusof ” C” **
(onGross liability%age) (215000) (215000) 430000 -------
NetLiability 125000 75000 NIL . 200000

4. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 4
** Surplus of C:
A : B
30 : 30
430000 * 30 / 60 : 430000 * 30 / 60
215000 : 215000
Q 3:- Solution:
Statement showing liability of each underwriter
Working Notes:
*Received Applications:
A: 8000 * 30 /100 = 2400
B: 8000 * 30 /100 = 2400
C: 8000 * 20 /100 = 1600
A
(30%)
B
(30%)
C
(20%)
Total
(80%)
Gross Liability 3000 3000 2000 8000
less: *Received Applications (2400) (2400) (1600) (6400)
NetLiability 600 600 400 1600

5. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 5
Q 8:- Solution:
Statement showing liability of each underwriter
Total
M
(35%)
N
(30%)
O
(20%)
P
(10%)
Q
(3%)
R
(2%)
Gross Liability
Less: Marked Applications
Less: Unmarked Applications
(on Gross Liability %age)
Less: Surplus of “O” and “Q”
(on Gross Liability %age)
Less: Surplus of “N” and “P”
(on Gross Liability %age)
Net Liability
100000
(65000)
35000
(20000)
15000
15000
15000
35000
(10000)
25000
(7000)
18000
(3000)
15000
(1351)
13649
30000
(22500)
7500
(6000)
1500
(2571)
(1071)
1071
NIL
20000
(20000)
( 0 )
(4000)
(4000)
4000
( 0 )
NIL
10000
(7500)
2500
(2000)
500
(857)
(357)
357
NIL
3000
(5000)
(2000)
(600)
(2600)
2600
( 0 )
NIL
2000
( 0 )
2000
(400)
1600
(172)
1428
(77)
1351
Working Notes:
**Unmarked Applications: *Gross Liability %age:
M: 20000 * 35 /100 = 7000 M : N : O : P : Q : R
N: 20000 * 30 /100 = 6000 35000 : 30000 : 20000 : 10000 : 3000 : 2000
O: 20000 * 20 /100 = 4000 35% :30% 20% 10% 3% 2%
P: 20000 * 10 /100 = 2000
Q: 20000 * 3 /100 = 600
R: 200000 * 2 /100 = 400
Surplus of “O” and “Q”: Surplus of “N” and “P”;
(4000+2600=6600) (1071+357=1428)
M : N : P : R M : R
35 : 30 : 10 : 2 35/37 2/37

6. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 6
Q 2:- Solution:
Statement showing liability of each Underwriter
Total A B C
Gross Liabilities
Less:Marked Applications
Less:FirmApplications
(onGL Ratio)
Less:UnmarkedApplications
(onGL Ratios)
Less:Surplusof “C”
(onGL Ratio)
Net Liability
Add:FirmUnderwriting
Total liability
50000
(30000)
20000
(7500)
12500
(7500)
5000
5000
7500
12500
30000
(16000)
14000
(4500)
9500
(4500)
5000
(333)
4667
5000
9667
15000
(10000)
5000
(2250)
2750
(2250)
500
(167)
333
2000
2333
5000
(4000)
1000
(750)
250
(750)
(500)
500
0
500
500
Working Notes:
*Unmarked Applications: total Received Applications 45000
A: 7500 * 6 /10 = 4500 Marked Applications (30000)
B: 7500 * 30 /10 = 2250 15000
C: 7500 * 1 /10 = 750 FirmApplications (7500)
UnmarkedApplications 7500
** Surplus of C:
A : B Gross Liability Ratio:
6 : 3 A : B : C
500 * 6 / 9 : 500 * 3 / 9 30000 : 15000 : 5000
333 : 167 6/10 : 3/10 : 1/10

7. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 7
Q 6:- Solution:
Statement showing liability of each Underwriter
Total A B C
Gross Liabilities
Less:Marked Applications
Less:FirmApplications
(onGL Ratio)
Less:UnmarkedApplications
(onGL Ratios)
Less:Surplusof “B”
(onGL Ratio)
Net Liability
Add:FirmUnderwriting
Total liability
40000
(14000)
26000
(8400)
17600
(6000)
11600
11600
8400
20000
24000
(4000)
20000
(5040)
14960
(3600)
11360
(1280)
10080
3200
13280
10000
(8000)
2000
(2100)
(100)
(1500)
(1600)
1600
0
1200
1200
6000
(2000)
4000
(1260)
2740
(900)
1840
(320)
1520
4000
5520
Working Notes:
*Unmarked Applications: total Received Applications 20000
A: 6000 * 12 /20 = 3600 Marked Applications (14000)
B: 6000 * 5 /20 = 1500 UnmarkedApplications 6000
C: 6000 * 3 /20 = 900
** Surplus of B:
A : C Gross Liability Ratio:
12 : 3 A : B : C
1600 * 12 / 15 : 1600 * 3 / 15 24000 : 10000 : 6000
1280 : 320 12/20 : 5/20 : 3/20

8. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 8
Q 7:- Solution:
Statement showing liability of each Underwriter
Total A B C
Gross Liabilities
Less:Marked Applications
Less:FirmApplications
(onGL Ratio)
Less:UnmarkedApplications
(onGL Ratios)
Less:Surplusof “B”
(onGL Ratio)
Net Liability
Add:FirmUnderwriting
Total liability
40000
(19400)
20600
(8400)
12200
(600)
11600
11600
8400
20000
24000
(7200)
16800
(5040)
11760
(360)
11400
(1000)
10400
3200
13600
10000
(9000)
1000
(2100)
(1100)
(150)
(1250)
1250
0
4000
4000
6000
(3200)
2800
(1260)
1540
(90)
1450
(250)
1200
1200
2400
Working Notes:
*Unmarked Applications: total Received Applications 28400
A: 600 * 12 /20 = 360 Marked Applications (19400)
B: 600 * 5 /20 = 150 9000
C: 600 * 3 /20 = 90 FirmApplications (8400)
UnmarkedApplications 600
** Surplus of B:
A : C Gross Liability Ratio:
12 : 3 A : B : C
1250 * 12 / 15 : 1250 * 3 / 15 24000 : 10000 : 6000
1000 : 250 12/20 : 5/20 : 3/2

9. Part II Chapter 18: “Underwriting of Shares and Debentures”
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: Arshad_mccm@yahoo.com Page 9
Q 9:- Solution:
Statement showing liability of each Underwriter
Total A B C
Gross Liabilities
Less:Marked Applications
Less:FirmApplications
Less:UnmarkedApplications
(onGL Ratios)
Less:Surplusof “B”
(onGL Ratio)
Net Liability
Add:FirmUnderwriting
Total liability
80000
(22000)
58000
(16800)
41200
(18000)
23200
23200
16800
40000
48000
(8000)
40000
(6400)
33600
(10800)
22800
(2000)
20800
6400
27200
20000
(10000)
10000
(8000)
2000
(4500)
(2500)
2500
0
8000
8000
12000
(4000)
8000
(2400)
5600
(2700)
2900
(500)
2400
2400
4800
Working Notes:
*Unmarked Applications: total Received Applications 40000
A: 18000 * 12 /20 = 10800 Marked Applications (22000)
B: 18000 * 5 /20 = 4500 UnmarkedApplications 18000
C: 18000 * 3 /20 = 2700
** Surplus of B:
A : C Gross Liability Ratio:
12 : 3 A : B : C
2500 * 12 / 15 : 2500 * 3 / 15 48000 : 20000 : 12000
2000 : 500 12/20 : 5/20 : 3/20