The Koepka Co. and the Johnson Co. have both announced IPOS at $54 per share. One of these is undervalued by $16.00, and the other is overvalued by $7.75, but you have no way of knowing which is which. You plan on buying 1,700 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 1,700 shares in Koepka and 1,700 shares in Johnson, what would your profit be? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What profit do you actually expect? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What principle have you illustrated? Profit 14,025 a. b. Expected profit Principle C.
The Koepka Co. and the Johnson Co. have both announced IPOS at $54 per share. One of these is undervalued by $16.00, and the other is overvalued by $7.75, but you have no way of knowing which is which. You plan on buying 1,700 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 1,700 shares in Koepka and 1,700 shares in Johnson, what would your profit be? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What profit do you actually expect? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What principle have you illustrated? Profit 14,025 a. b. Expected profit Principle C.
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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How do you solve a,b, and c?
Transcribed Image Text:The Koepka Co. and the Johnson Co. have both announced IPOS at $54 per share. One
of these is undervalued by $16.00, and the other is overvalued by $7.75, but you have no
way of knowing which is which. You plan on buying 1,700 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 1,700 shares in Koepka and 1,700 shares in Johnson, what
would your profit be? (Do not round intermediate calculations and round your
answer to the nearest whole number, e.g., 32.)
b. What profit do you actually expect? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
c. What principle have you illustrated?
Profit
14,025
a.
b. Expected profit
Principle
C.
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