Purchase Solution

IPO Underpricing

Not what you're looking for?

Ask Custom Question

The Johns Co. and the Eversmann C0. have both announced IPOs at $40 per share. One of these is undervalued by $11, and the other is overvalued by $6, but you have no other way of knowing which is which. You plan on buying 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 Johns and 1000 shares of Eversmann, what would your profit be? What profit do you expect? What principle have you illustrated?

Purchase this Solution
Solution Summary

The solution explains some calculations relating to IPO underpricing.

Solution Preview

What would your profit be?

If we could get 1,000 shares in each the profit would be
1,000X 11 - 1,000 X 6 = $5,000
We profit for the undervalued shares by $11 and lose ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Underpricing and corresponding theories regarding IPOs

    Although underpricing is a cost to the issuing company it is still undertaken largely (Gregoriou, n.d). Underpricing creates more demand for IPO which is an indicator of success of the IPO.

  • Stock Portfolio and IPO Underpricing

    39141 Stock Portfolio / IPO Underpricing Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get me.

  • IPO underpricing

    23250 How corporations issue securities and IPO underpricing IPO Underpricing Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me.

  • How corporations issue securities

    73482 How corporations issue Securities Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get for me.

  • Good Time for an IPO

    These costs include the underwriting discount and underpricing. The Sarbanes-Oxley Act (SOX) has a greater impact on publicly-traded companies than private companies. References: Eckbo, B.E. (2004, October 27). IPO underpricing: a survey.

  • Return from IPO investment

    (See attached file for full problem description) Having heard about IPO underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get me.

  • Underpriced IPOs

    Risk proxies and IPO underpricing: An empirical investigation. IUP Journal of Applied Finance, 17(4), 38-56. Explains some reasons for IPO's being underpriced.

  • Analyze an IPO

    26840 Analyze an IPO Having heard about OPI underpricing, I put in an order to my broker for 1,000 shares of every IPO he can get me. After 3 months, my investment record is as attached. A.

  • Determination of an offering price for an IPO (initial publi

    The effect of underpricing an IPO is to generate additional interest in the stock when it first becomes publicly traded. This leads to massive gains for investors who enter the IPO early.

  • Finance: Ebay's IPO price, LaserAce dividend growth, Huskie Motor current price

    In the IPO, Ebay issued 3,500,000 new shares. The intial price to the public was $18.00 per share. The final first-day closing price was $44.88. 1. Two common statistics in IPOs are underpricing and money left on the table.

View More Related Solutions