What does the term under-pricing refer to? If the average IPO is underpriced by about 15 percent, how could an unsophisticated investor, who regularly invests in IPOs, earn an average return less than 15 percent?
Answer to relevant QuestionsHow should a corporation estimate the amount of financing it must raise externally during a given year? Once that amount is known, what other decision must be made? The Norman Company needs to raise $50 million of new equity capital. Its common stock is currently selling for $50 per share. The investment bankers require an underwriting spread of 3 percent of the offering price. The ...What is the difference between levered and unlevered equity? What effect does substituting debt for equity have on the required return on (levered) equity? What factors might influence the choice between a bond issue with a sinking fund requirement and a serial bond issue? Why are syndicated loans especially useful for financing takeovers?
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