The Woods Co. and the Mickelson Co. have both announced IPOs at $50 per share. O

Question

The Woods Co. and the Mickelson Co. have both announced IPOs at $50 per share. One of these is undervalued by $9, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 400 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

If you could get 400 shares in Woods and 400 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.)

What profit do you actually expect? (Do not round intermediate calculations.)

The Woods Co. and the Mickelson Co. have both announced IPOs at $50 per share. One of these is undervalued by $9, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 400 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

Explanation / Answer

If you could get 400 shares in Woods and 400 shares in Mickelson, what would your profit be=$9*400-$2*400=$2,800

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