ABC Ltd would like to have the initial public offering (IPO) for its common stock. After discussing with a few investment banks and sponsors, ABC Ltd decides to make use of a firm commitment contract. The investment banks agree to buy the shares at a guaranteed price at $X, and finally, the IPO offer price is set to be $20, and there are 200 shares per lot. The beginning price of the first trading day is at $30, and the closing price on that day is at $25.

(a) Calculate the initial return (rate) of the IPO. (6 marks)

(b) Discuss the possible range of the Value for $X (the guaranteed price) with not more than 80 words. (8 marks)

(c) Discuss (with not more than 80 words) why some regular investors would tell the I-banks that how much they are willing to subscribe for the IPO. (8 marks)