The Offering price is the term used to define the value of the individual shares at which these securities are sold during the initial public offering. This is the initial price at which the securities are being offered to the public by the companies. There are quite a few factors that the company takes into consideration when establishing the offering price. Note that the investment Bank adds the management as well as the underwriter’s fee.
Offering price is mainly used for the initial public offering. It can also be used in reference to other types of financial products, such as stocks and Bonds. Any financial commodity that’s sold in the financial Market involves an offering price. As far as the IPO is concerned, the underwriter is supposed to establish the price. The underwriter reviews the Intrinsic Value of the company and decides the price that will be fair to the investors.
The price has to be fair to institutional and individual investors. Only the securities that are offered at a fair price to the public manage to attract a great level of attention. Contrary to what most people believe, deciding on the offering price is like Hollywood scriptwriting. The price must be high enough for the company to raise sufficient funds to finance the project at hand, while low enough to grab the attention of the public. Usually, people do not want to invest in securities that come at a high price.
The term is also known as the public offering price. It is important to note that investors hardly purchase the stocks at the offering price. These shares are rather sold to institutional investors at the public offering price. The investment bank decides the offering price based on the supply and demand factors. It works as the first opportunity for the investors to purchase shares at the initial offering price. Usually, the offering price lasts only a few hours. As people start to purchase and sell the shares, the fluctuation starts. That’s the reason why most experts recommend investors purchase the shares on the first day itself. This gives them the chance to buy it at the offering price. The price fluctuations can start within a few hours of the securities offering.
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There are cases when the companies set the offering price that exceeds the intrinsic value of the company. In addition to the company’s value, the price of the shares is also determined by the market appetite. The investment banker has to consider the industry you operate in. There is a chance the market factors could drop the stock price of the securities. That’s a chance for investors to purchase the shares at a price lesser than the offering price. However, there is no guarantee the price will drop. If the securities perform well in the financial market, its price could increase. You may have to purchase these securities at a price higher than the initial offering.