Having heard about IPO underpricing, I put in an order to my broker for
2,300 shares of every IPO he can get for me. After 3 months, my
investment record is as follows:
IPO Shares Allocated to Me Price per Share Initial Return
A 850 $10 7%
B 550
20
15
C 2,300
6
−4
D 0
10
26
Required:
a. What is the average underpricing of this sample of IPOs?
b. Calculate the average initial return, weighting by the amount of money invested in each issue.
