Enter formulas to compute the requirements of this problem.
Q1. What is the average underpricing of this sample of IPOs?
Average underpricing FORMULA
Q2. What is the average initial return on my "portfolio" of shares purchased from the four IPOs I bid on?
Calculate the average initial return weighting by the amount of money invested in each issue.
Investment Initial
(Shares x price) Return Profit
A FORMULA 7% FORMULA
B FORMULA 12% FORMULA
C FORMULA -2% FORMULA
Total $0 $0
Average return FORMULA
Q3. Why have I performed so poorly relative to the average initial return on the full sample of IPOs? What lessons do you draw from my experience?