Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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The highest price at which a stabilizing bid may be placed is the ________________________.

Initial offering price
Public offering price (POP)
Market price
Distributor price

The correct answer is: Public offering price (POP)

The correct answer is the public offering price (POP) because stabilizing bids are used in the context of new issues that are being offered to the public. The public offering price is the price at which the securities are initially offered to the public in an underwriting. Under the regulations set forth by the Securities and Exchange Commission (SEC), a stabilizing bid may not exceed the public offering price to prevent artificial inflation of the securities' market price during the stabilization process. Stabilizing bids are intended to provide support to the stock price after an initial offering and are placed to enhance market stability. The aim is to stabilize the price of the security while it finds its true market value, which is why the bid must remain at or below the POP. The initial offering price is similar to the public offering price, but it primarily refers to the initial price set before any trading takes place. Market price refers to the price at which the stock is currently trading in the secondary market, which can fluctuate based on supply and demand. Distributor price typically refers to the price at which the security is sold to the distributors or brokers, which does not fit the context of a stabilizing bid.