Question
Asked Oct 26, 2019
13 views

Please show all equations and work as needed. Make the correct answer clear. If possible, please type work so it can be copied. Thank you.

Your investment bankers price your IPO at
$14.67 per share for 10.5 million shares. If the
price at the end of the first day of trading is
$16.52 per share, what was the percentage
underpricing?
11.1%
14.1%
12.6%
10.6%
help_outline

Image Transcriptionclose

Your investment bankers price your IPO at $14.67 per share for 10.5 million shares. If the price at the end of the first day of trading is $16.52 per share, what was the percentage underpricing? 11.1% 14.1% 12.6% 10.6%

fullscreen
check_circle

Expert Answer

Step 1

Note: Calculations are typed as per request for your convenience

When an IPO is priced below the possible market value of the shares, the IPO is under-priced.  The key reason for under-pricing an IPO is to generate strong interest among institutional and individual investors.

Step 2

Percentage of under-pricing could be calculated as below:

= (End of Day price – Offer Price ) / Offer Price

= (16.52 – 14.67) / 14.67

...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Investment and Capital Market

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Please show all equations and work as needed. Make the correct answer clear. If possible, please typ...

A: The present value (PV) of the investment is the sum of the present value of year 1 cash flows, year ...

question_answer

Q: find the interst periodic deposit 4000 rate .055 time 40 years

A: Assumption:It is assumed that the periodic deposit of $4,000 is compounded annually at the rate of 5...

question_answer

Q: A family spends $46,000 a year in living expenses.If prices increase 3% a year for the next 3 years ...

A: The value of the asset that is expected to be in future due to specified growth rate is known as fut...

question_answer

Q: Executives at Microsoft are interested to get into the drone delivery business. Since it would take ...

A: 1.First option:With an assumption of the lump sum fund of $40 million is made in 0th year, the prese...

question_answer

Q: At time t you own one stock that pays no dividends, and observe that F(t, T) < St/Z(t, T). What a...

A: Arbitrage is the act of an arbitrageur where the person buys or sells at the same time in similar as...

question_answer

Q: If you invest $900 in a bank in which it will earn 8 percent compounded quarterly, how much will it ...

A: PV = $ 900; r = 8% compounded quarterly; m = frequency of compounding = 4 (as there are four quarter...

question_answer

Q: Question 2 Executives at Microsoft are interested to get into the drone delivery business. Since it ...

A: We need to use the concept of time value of money to solve the question. According to the concept of...

question_answer

Q: A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north o...

A: 1) To set up a new a mine in a mountain which is 150 kms north of Johannesburg, the company would sp...

question_answer

Q: advantages of negative interest rate policies?

A: There are pros and cons of negative interest rate policies. In fact, in my opinion negative interest...