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The Bert Corp. and Ernie, Inc., have both announced IPOs. You place an order for 1,150...

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Finance

The Bert Corp. and Ernie, Inc., have both announced IPOs. Youplace an order for 1,150 shares of each IPO. One of the IPOs isunderpriced by $18.00 and the other is overpriced by $6.50. Youwill receive all of the shares you ordered of the overpriced IPO,but only one-half of the shares you ordered of the underpriced IPO.What profit do you expect?

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4.0 Ratings (583 Votes)
In this case in order to calculate the expected profit we need to treat amount by which the shares are underpriced as profit because eventually when the markets achieve equilibrium in    See Answer
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The Bert Corp. and Ernie, Inc., have both announced IPOs. Youplace an order for 1,150 shares of each IPO. One of the IPOs isunderpriced by $18.00 and the other is overpriced by $6.50. Youwill receive all of the shares you ordered of the overpriced IPO,but only one-half of the shares you ordered of the underpriced IPO.What profit do you expect?

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