Having heard about IPO underpricing, I put in an order to my broker for 2200 sha

Question

Having heard about IPO underpricing, I put in an order to my broker for 2200 shares of every IPO he can get for me. After 3 months, my investment record is as follows: IPO: (A) shares allocated to me is 750 and price per share is $10 and initial retur is 6%; IPO (B), share allocated to me is 450 and price per share is $20 and initial return is 14%; IPO (C), shares allocated to me is 2,200 and price per share is $5 and initial return is minus 2%; IPO (D), shares allocated to me is 0, and price pre share is $9, and initial return is 26%. (a). What is the average underpricing of this sample IPOs? Average underpricing _______% (b). Calculate the average initial return, weighting by the amount of money invested in each issue. (ROUND YOUR ANSWER TO 2 ECIMAL PLACES.) Average initial return? ______%

Explanation / Answer

Hi, Please check the below mentioned answers: Part A = (6+14-2+26)/4 = 11% Part B = (750*.06*10 + 450*.14*20 + 2200*-.02*5 + 0*.26*9)/(750*10 + 450*20 + 2200*2) = 7.13% Thanks.

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