Question: Using Rocks model, please calculate the issue price and the resulting underpricing required to induce uninformed buyers to participate in the following IPO. You can

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%).

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ANS WER Issue price 10 Under pr icing 2 C AL C UL ATION 10 1 0 2 15 0 2 12 12 10 2 ... View full answer

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