Four companies conducted IPOs last month: Hot.Com; Biotech Pipe Dreams Corp.: Sl

Question

Four companies conducted IPOs last month: Hot.Com; Biotech Pipe Dreams Corp.: Sleepy Tyme, Inc.; and Bricks N Mortar International. All four companies went public at an offer price of $10 per share The first-day performance of each stock (measured as the percentage difference between the IPO offer price and the first-day closing price) was as follows: a. If you submitted a bid through your broker for 100 shares of each company, if your orders were filled completely, and if you cashed out of each deal after one day. what was your average return on these investments? b. Next, suppose that your orders were not all filled completely because of excess demand for hot IPOs. Specifically, after ordering 100 shares of each company, you were able to buy only 10 shares of Hot.Com. 20 shares of Biotech Pipe Dreams. SO shares of Sleepy Tyme, and 100 shares of Bricks N Mortar. Recalculate your average return, taking into account that your orders were only partially filled.

Explanation / Answer

Average return =?(number of share*return)/?number of share

a)average return=(100*0.45+100*0.3+100*0.05+100*0)/(100+100+100+100)= 20.000%

b)average return =(10*0.45+20*0.3+50*0.05+100*0)/(10+20+50+100)= 7.222%

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