4. 4.

IPO underpricing [LO 15.3] The Woods Co. and the Spieth Co. have both announced IPOs at $40 per share. One of these is undervalued by

$9 and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 1 000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1 000 shares in Woods and 1 000 shares in Spieth, what would your profit be? What profit do you actually expect?

What principle have you illustrated?