A new company is offering its shares for sale in an initial public offering (IPO) through an auction. There is a 50% probability that the company will be very successful, in which case each share is worth $28. Otherwise, each share is worth $0. You are competing with professional investors such as hedge funds that know if the company will be successful or not. Part 1 If you bid $14 per share, what is your expected return?

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Risk and Uncertainty

Uncertainty refers to a situation when there is one possible outcome of a decision but where the probability of occurrence of each particular outcome is not known or cannot be estimated.