What is the average IPO under pricing

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Reference no: EM131980599

You have an arrangement with your broker to request 1,000 shares of all available IPOs. Suppose that 10% of the time, the IPO is "very successful" and appreciates by 111% on the first? day, 77% of the time it is "successful" and appreciates by 12%, and 13% of the time it? "fails" and falls by 13%.

a. By what amount does the average IPO appreciate the first day; that is, what is the average IPO underpricing?

The average IPO appreciation the first day is __________%. (Round to one decimal place.)

b. Suppose you expect to receive 65 shares when the IPO is very successful, 220 shares when it is successful, and 1,000 shares when it fails. Assume the average IPO price is $20.

What is your expected one-day return on your IPO investments?

The expected one-day return on the IPO investments is ___________%. (Round to one decimal place.)

Reference no: EM131980599

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