Four companies conducted IPOs last month: Hot.Com, Biotech Pipe Dreams Corp., Sleepy Tyme Inc., and Bricks N Mortar International. All four companies went public at an offer price of $10 per share. The first day performance of each stock(measured as the percentage difference between the IPO offer price and the first day closing price) appears below:
Company First Day Return
Biotech Pipe Dreams 30%
Sleepy Tyme 5%
Bricks N Mortar 0%
a. You submit a bid through you broker for 100 shares of each company. Your orders were filled completely, and you cashed out of each deal after one day. What was your average return on these investments?
b. Next supposed your orders were not all filled completely because of excess demand for "hot" IPOs. After ordering 100 shares of each company, you were able to buy only 10 shares of Hot.Com, 20 shares of Biotech Pipe Dreams, 50 shares of Sleepy Tyme, and 100 shares of Bricks N Mortar. Recalculate your average return, taking into account that your orders were only partially filled.
The solution explains how to calculate the average return on investment for the given situations.