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1. You have estimated that underwritten IPOs in 2023 will be underpriced according to the following distribution: (a) What is your expected profits if you
1. You have estimated that underwritten IPOs in 2023 will be underpriced according to the following distribution: (a) What is your expected profits if you are expecting 100 underwritten IPOs in 2023 and you plan to invest $10,000 in each IPO at the initial IPO price (pre-market open) and then sell at the end of the first day of trading for each IPO? (Assume you will be able to buy all the IPO shares required for your plan and ignore time value of money considerations). Show your calculation (b) If the expected return for new underwritten IPOs in 2023 is 15%, does your answer to part (a) suggest that IPOs represent a trading rule where you can easily beat the market? Explain (c ) Describe a set of realistic probabilities and/or expected first day returns where the expected return in part (a) would be consistent with market efficiency theory and would provide a return for all of 2023 that is exactly 15% overall on invested funds after investing in all 100 IPOs. Show your calculation and explain why your assumptions about probabilities and first-day returns are reasonable
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