Big Easy Investment Banking, Inc., is participating in an Eastern account underwriting of $10 million of municipal bonds by agreeing to underwrite 10% of the issue. One week later, $4 million remains unsold but Big Easy has distributed $1.5 million of bonds.
What is the liability of Big Easy remaining in the account?
- $0
- $400,000
- $600,000
- $1,000,000
Answer(s): B
Explanation:
$400,000. In an Eastern account, liability remains open until the entire syndication is closed. Therefore, Big Easy has a liability for 10% of the unsold portion. Since the unsold portion is $6 million, the liability for Big Easy is 10% of that amount, which is $400,000.