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    IPO: average underpricing, average initial return, risk of investing in IPOs

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    See the problem attached.

    a. What is the average under pricing of this sample of IPOs?
    b. What is the average initial return on my "portfolio" of shares purchased from the four IPOs I bid on?
    Calculate the average initial return weighting by the amount of money invested in each issue.
    c. Why have I performed so poorly relative to the average initial return on the full sample of IPOs? What lessons do you draw from my experience?

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    Solution Summary

    The solution completes the exercise as requested and comments on the poor average initial return by the investor.