The Koepka Co. and the Johnson Co. have both announced IPOs at $58 per share. One of these is undervalued by $18.00, and the other is overvalued by $8.75, but you have no way of knowing which is which. You plan on buying 1,900 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

a.Assuming you could get 1,900 shares in Koepka and 1,900 shares in Johnson, what would your profit be?

b.What profit do you actually expect?

c.What principle have you illustrated?