3. Under-pricing of Initial Public Offerings (POS) refers to A. Underwriting fee

Question

3. Under-pricing of Initial Public Offerings (POS) refers to A. Underwriting fees charged by investment banks. B. A benefit received by the pre-IPO shareholders of the issuing company C. The extent to which the price of the issued shares trade below the IPO offer price orn its first day of trading. D. The extent to which the price of the issued shares trade above the IPO offer price on its first day of trading. Barry bought 100 Ballistic Ltd shares for $20 each. Barry has detailed his expectation of possible share prices in one year's time, in three possible states of the economy (see below). No dividends are expected. 4. State Probability Price (end Boom 0.5 Level 0.3 Slump 0.2 $24 $20 $18 Based on the above, the expected annual return on Ballistic Ltd shares, is: A. 8.0% B. 12.0% C. 3.3% D. 20.0% 5. The Australian Securities and Investments Commission (ASIC) is responsible for A. Market integrity and consumer protection across the financial system. B. Setting standards for fiñancial market behaviour in share markets. C. Setting standards to protect investor and consumer confidence. D. All of the above.

Explanation / Answer

3) Answer : D. The extent to which the price of the issued shares trade above the IPO offer price on its first day of trading. 4) Answer : A. 8.0% the expected annual return = 0.50 * (4/20) + 0.30 * 0 + 0.20 * (-2/20) = 0.08 or 8% 5) Answer : D. All of the above The ASIC is responsible for all the above three activities.

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