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

What information does not appear in a preliminary prospectus (red herring)?

1. Final offering price

2. Estimated costs

3. Company overview

4. Market analysis

The correct answer is: Final offering price

The correct choice indicates that the final offering price does not appear in a preliminary prospectus, also known as a red herring. A preliminary prospectus is used during the early stages of the offering process and serves as an informative document for potential investors. However, it is important to note that the final offering price is not yet determined at this stage, as the issuer is still gauging interest and may set the price following feedback from potential investors. The preliminary prospectus typically includes a wide array of pertinent information such as an overview of the company, which provides insights into its business operations and objectives. It also includes estimated costs associated with the offering, which can include underwriting fees, legal expenses, and other costs that may impact the final proceeds. Additionally, market analysis is often included to demonstrate the potential for success and market demand for the company’s shares. Thus, the absence of the final offering price in the preliminary prospectus is due to the fact that this document is meant to present a forecast and attract investor interest before the actual terms of the offering are finalized.