a) Initial Public Offering: i) What is Initial Public Offering (short explanation) ii) Describe the steps of a typical IPO. iii) In analyzing IPOs, a recent research article writes: 'From 1990 to 2010, the closing price on the first trading day was on average 8% higher than the initial IPO price for an equity share." What is the difference in Pricing called? iv) When selling shares below their value, the company effectively loses money. Is there an explanation for this phenomenon? v) The above research article continues: 'It is interesting to note that the price differential between the initial IPO price and the closing price on the first trading day is not similar across countries. In China, this difference is much larger compared to the United States." How can you explain such cross-country differences? b) answer true or false with a short explanation to each statement. 1) Venture capitalists expect returns of 40% or more from their investments, because the betas of start-up companies are very high. 2) The better shareholders are protected in a country, the higher the ownership concentration of shareholders. 3) The rate of return of a perpetuity is equal to the cash flow multiplied by the price. 4) The share price of a company reflects accurately the e ort of a manager. 5) The constant growth formula for stock valuation does not work for forms with negative growth (declining) rates in dividends. 6) The average beta of all stocks is always equal to zero. 7) Delegation of financial decision making is not possible, since investors have different consumption preferences. 8) Risky assets have always a higher rate of return than the risk-free rate. 9) If capital markets are efficient, then the purchase or sale of any security at the prevailing market price is never a positive-NPV transaction. 10) A reverse stock split is illegal. 11) According to Miller and Modigliani, the cost of equity increases as more debt is issued, but the weighted average cost of capital remains unchanged. 12) The pecking order theory implies that firms prefer external to internal financing. 13) The risk of outstanding bonds decreases over time. 14) Shares of companies with valuable PVGO trade at low E/P ratios. 15) The longer the time to expiration, the higher the value of a put option