Question
The K Co. and the C Co. have both announced IPOs at $40 per share. One of these is undervalued by $11/share, and the other
The K Co. and the C Co. have both announced IPOs at $40 per share. One of these is undervalued by $11/share, and the other is overvalued by $3/share but you, as an investor, does not know which is which. You plan to buy 1,000 IPO shares from each company. If an IPO is underpriced, it will be oversubscribed by investors, resulting in you being able to purchase half of the intended IPO shares. Somehow, your order for 1,000 IPO shares in both companies are filled and you intend to sell all your IPO shares on the first day of IPO share trading.
a) What profit do you actually realise at the end of the first day of IPO share trading?
b) What expected profit do you initially estimated?
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