5. The firm Ragnar has announced an initial public offering of shares (IPO). The shares are being offered in the IPO at a price of $6 each. All potential investors know that at this price the share is either undervalued by $0.50 (probability 60%) or overvalued by $0.30 (probability 40%). 'Informed investors such as banks are able to distinguish whether the share is overvalued or undervalued. Uninformed investors are not able to do this. Demand from uninformed investors is sufficient to take up all the shares offered in the IPO. If the demand for the shares is greater than the number offered, the shares will be rationed. You are an uninformed investor with $12,000 to invest. If rationing occurs you will only be able to buy 800 of Ragnar's IPO shares. (e) Explain what is meant by the 'winner's curse' in the context of IPOs, with reference to your answers for the previous parts of the question. Briefly discuss one other possible reason for the empirically observed underpricing of IPOs. (140 words) (7 marks)