Problem 15-21 Aftermarket for new public issue [LO15-4]

I. B. Michaels has a chance to participate in a new public offering by Hi-Tech Micro Computers. His broker informs him that demand for the 450,000 shares to be issued is very strong. His brokers firm is assigned 27,000 shares in the distribution and will allow Michaels, a relatively good customer, 2.20 percent of its 27,000 share allocation.

The initial offering price is $45 per share. There is a strong after market, and the stock goes to $46.00 one week after issue. The first full month after issue, Mr. Michaels is pleased to observe his shares are selling for $47.50. He is content to place his shares in a lock box and eventually use their anticipated increased value to help send his son to college many years in the future. However, one year after the distribution, he looks up the shares in The Wall Street Journal and finds they are trading at $44.20.

a. Compute the total dollar profit or loss on Mr. Michaels shares one week, one month, and one year after the purchase. In each case, compute the profit or loss against the initial purchase price. (Do not round intermediate calculations and round your answers to 2 decimal places. Enter all amounts as a positive value.)

b. Also compute the percentage gain or loss from the initial $30 price. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Enter all amounts as a positive value.)