Using Rocks model, please calculate the issue price and the resulting underpricing required to induce uninformed buyers
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Using Rock’s model, please calculate the issue price and the resulting underpricing required to induce uninformed buyers to participate in the following IPO. You can assume that two shares are offered and that there are one uninformed and one informed investors who will demand two shares each. In case of oversubscription, the shares will be pro-rated. The value of the firm can be either $10 (probability of 20%) or $15 (80%).
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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