Question

The Woods Co. and the Spieth Co. have both announced IPOs at $69 per share. One of these is undervalued by $16, and the other is overvalued by $6, but you have no way of knowing which is which. You plan to buy 1,800 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. a. If you could get 1,800 shares in Woods and 1,800 shares in Speith, what would your profit be?

Answer 1

Answer:

$18,000

Explanation:

Given that,

Number of shares = 1,800

Undervalued by = $16

Overvalued by = $6

Profit:

= (Number of shares × undervalued amount) - (Number of shares × Overvalued amount)

= (1,800 × $16) - (1,800 × $6)

= $28,800 - $10,800

= $18,000

Therefore, if you could get 1,800 shares in Woods and 1,800 shares in Speith then your profit would be $18,000.