An investment bank has been asked to underwrite an issue of 10 million shares by a company at the target price of $14 per share. The bank decides the best-efforts deal of 4 million shares where it charges a fee of $0.14 for each share sold, and the firm-commitment deal of 6 million shares. The bank considers that the possible selling prices per share are $13.7, $14.2 and $14.3 with respective probabilities 0.1, p and q where p is twice as likely as q.

1. What is the average selling price per share under the firm-commitment deal?
2. What would be the banks average gain or loss, if the bank took the selling strategy in a progressively unfavorable economic condition as follows: first it merely sold out under the best-efforts deal, second it just sold all shares in the sum of the two portions (at $14.2 and $14.3) by reducing to $13.9 each under the firm-commitment deal, and third it sold all shares in the remaining portion still at $13.7 each under the firm-commitment deal?