4. IPO Underpricing [LO3] The Woods Co. and the Spieth Co. have both announced IPOS at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1,000 shares in Woods and 1,000 shares in Spieth, what would your profit be? What profit do you actually expect? What principle have you illustrated?
4. IPO Underpricing [LO3] The Woods Co. and the Spieth Co. have both announced IPOS at $40 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 1,000 shares in Woods and 1,000 shares in Spieth, what would your profit be? What profit do you actually expect? What principle have you illustrated?
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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![4. IPO Underpricing [LO3] The Woods Co. and the
Spieth Co. have both announced IPOS at $40 per share. One
of these is undervalued by $9, and the other is overvalued by
$4, but you have no way of knowing which is which. You
plan to buy 1,000 shares of each issue. If an issue is
underpriced, it will be rationed, and only half your order will
be filled. If you could get 1,000 shares in Woods and 1,00o
shares in Spieth, what would your profit be? What profit do
you actually expect? What principle have you illustrated?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa67834ee-0fdf-4424-b804-68a4c92cb763%2Fc040ef0f-9806-40cf-81fa-131188b324eb%2Fbphjesn_processed.png&w=3840&q=75)
Transcribed Image Text:4. IPO Underpricing [LO3] The Woods Co. and the
Spieth Co. have both announced IPOS at $40 per share. One
of these is undervalued by $9, and the other is overvalued by
$4, but you have no way of knowing which is which. You
plan to buy 1,000 shares of each issue. If an issue is
underpriced, it will be rationed, and only half your order will
be filled. If you could get 1,000 shares in Woods and 1,00o
shares in Spieth, what would your profit be? What profit do
you actually expect? What principle have you illustrated?
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