Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

7.3 is the right answer for b. Could you show me how to get it, please? 1 1 You have an arrangement with your broker

image text in transcribed

7.3 is the right answer for b. Could you show me how to get it, please?

1 1 You have an arrangement with your broker to request 950 shares of all available IPOs. Suppose that 10% of the time, the IPO is "very successful" and appreciates by 114% on the first day, 83% of the time it is "successful and appreciates by 11%, and 7% 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? b. Suppose you expect to receive 70 shares when the IPO is very successful, 200 shares when it is successful, and 950 shares when it fails. Assume the average IPO price is $19. What is your expected one-day return on your IPO investments? 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 19.62 %. (Round to one decimal place.) 1 b. Suppose you expect to receive 70 shares when the IPO is very successful, 200 shares when it is successful, and 950 shares when it fails. Assume the average IPO price is $19. What is your expected one-day return on your IPO investments? The expected one-day return on the IPO investments is 7.3%. (Round to one decimal place.) 1 ! 1

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Principles Of Project Finance

Authors: Rod Morrison

1st Edition

1409439828, 9781409439820

More Books

Students also viewed these Finance questions

Question

=+1. What is a stakeholder? Define the term in your own words.

Answered: 1 week ago