One of your friends tells you that during IPOs, on average the price of stocks goes up during the first day of trading. This friend suggests setting up an investment strategy that consists of buying 1,000 shares for all IPOs in Switzerland and thus generating a substantial gain. You have the following information regarding Swiss IPOs: on average 75% of IPOs are successful and yield a return of 25% the first day. However, these successful IPOs are oversubscribed and the demand is 15 times higher than the supply of shares. For the remaining 25% of IPOs, the demand for shares is fully met and the average return is -5%. Assume an average price for IPO stocks of 100 CHF.

1. How do you respond to your friend? Motivate your answer with a quantitative argument!