Having heard about IPO underpricing, I put in an order to my broker for 2,900 sh

ID: 2717315 • Letter: H

Question

Having heard about IPO underpricing, I put in an order to my broker for 2,900 shares of every IPO he can get for me. After 3 months, my investment record is as follows:

What is the average underpricing of this sample of IPOs? (Do not round intermediate calculations. Enter your answer as a whole percent.)

What is the average initial return on my portfolio of shares purchased from the four IPOs I bid on? Calculate the average initial return, weighted by the amount of money invested in each issue. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Having heard about IPO underpricing, I put in an order to my broker for 2,900 shares of every IPO he can get for me. After 3 months, my investment record is as follows:

Explanation / Answer

=9%

b) The average initial return, weighted by the amount of money invested in each issue

No of Shares

Price Per Share

Amount of Investment (W)

Return(x)

800

20000

160000

500

17500

210000

2900

20300

-9

-182700

Sum of WX

187300

Average initial return = Sum of WX/Sum of W

= 187300/57800

= 3.24%

Annual initial return = 3.24*4

= 12.96%

The average underpricing of this sample of IPOs = (8+12-9+25)/4