10. IPO Costs. Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IP0 he can get for me. After 3 months, my investment record is as follows: (LO15-2) Shares Allocated to Me Price per Share Initial Return IPO A 500 $10 7% 200 20 12 1,000 8 -2 D 12 23 a. What is the average underpricing in dollars of this sample of IPOS? b. What is the average initial return on my "portfolio" of shares purchased from the four IPOS that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue. c. "You have just encountered the problem of the winners' curse." True or false?
10. IPO Costs. Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IP0 he can get for me. After 3 months, my investment record is as follows: (LO15-2) Shares Allocated to Me Price per Share Initial Return IPO A 500 $10 7% 200 20 12 1,000 8 -2 D 12 23 a. What is the average underpricing in dollars of this sample of IPOS? b. What is the average initial return on my "portfolio" of shares purchased from the four IPOS that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue. c. "You have just encountered the problem of the winners' curse." True or false?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:10. IPO Costs. Having heard about IPO underpricing, I put in an order to my broker for 1,000
shares of every IPO he can get for me. After 3 months, my investment record is as follows:
(LO15-2)
IPO
Shares Allocated to Me
Price per Share
Initial Return
A
500
$10
7%
B
200
20
12
1,000
8
-2
D
12
23
a. What is the average underpricing in dollars of this sample of IPOS? b. What is the average
initial return on my "portfolio" of shares purchased from the four IPOS that I bid on? When
calculating this average initial return, remember to weight by the amount of money invested in
each issue. c. "You have just encountered the problem of the winners' curse." True or false?
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