Walton and Company is the managing investment banker for a major new underwritin

Question

Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is $20 per share. Other syndicate members may buy the stock for $21.25. The price to the selected dealers group is $22.48, with a price to brokers of $23.22. Finally, the price to the public is $24.50.

a. If Walton and Company sells its shares to the dealers group, what will the percentage return be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If Walton and Company performs the dealer’s function also and sells to brokers, what will the percentage return be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If Walton and Company fully integrates its operation and sells directly to the public, what will its percentage return be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

given the price of the stock to the investment banker is $20 per share.

the price of the stock to Other syndicate members = $21.25

the price of the stock to the selected dealers group is $22.48

the price of the stock with a price to brokers of $23.22

Finally, the price to the public is $24.50.

a. % Return = (Dealer price - Investment Banker price)/Investment Banker price

= ($22.48-20)/20= 12.4%

b.

If Walton and Company performs the dealer’s function also and sells to brokers

% return = (Broker price-Dealer price)/delare price = (23.22-22.48)/22.48= 3.29%

c. % Return = (Public price - Investment Banker price)/Investment Banker price = (24.50-20/20=22.5%

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