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$1$ Chapter $15-$ Dropbox $3\mathrm{.}4$

Problem $2$: IPO Underpricing

The Woods Co$.$ and the Mickelson Co$.$ have both announced IPOs at $$40$ per share. One of these is undervalued by $$11,$ and the other is overvalued by $$3,$ but since only God is omniscient, you have no way of knowing which is which. be filled.

a$)$ If you could get $1,000$ shares in Wodds and $1,000$ shares in Mickelson, what would your total profit be$?$

b$)$ What profit do you actually expect?

c$)$ What principle have you just illustrated?

Create your Original Solution Below $-$ Be sure to show all calculations and clearly indicate answers.

Input Area:

$$ Amount needed to be raised

Cut of amount raised paid to Underwriter for their risk and services Needed for Part B of the problem

Could be legal, regulatory, accounting, managerial fees

Output Area:

a$)$

Proceeds from sale

$

Number of shares offered

Must raise $7\%$ more than needed to cover underwriter's spread

Total amount needed$/$Offer price per share

b$)$

Chap $14$#

Chap $14$ #$2$

Chap $14$ #$3$

Chap $15$#$1$

Chap $15$ #$2$

Chap $15$#$3$

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