Question

The Bert Corp. and Ernie, Inc., have both announced IPOs. You place an order for 1,350 shares of each IPO. One of the IPOs is underpriced by $19.00 and the other is overpriced by $7.50. You will receive all of the shares you ordered of the overpriced IPO, but only one-half of the shares you ordered of the underpriced IPO. What profit do you expect? $12,825.00 $2,700.00 $12,937.50 $35,775.00 $15,525.00

PLEASE SHOW WORK

Answer 1

It is given that one IPO is overpriced, so whatever shares you get of it, will be a loss for you and One IPO is underpriced, so whatever shares you get of underpriced IPO is your profit.

So We have loss of 1350 shares x $7.5 = $10,125 from Overpriced IPO

And Profit of 1350 x 50% x $19 = $12,825 from underpriced IPO

Now the net amount will be your Gain or (loss) that is $12,825 - $10,125 = $2,700 Profit So Option B is right.