A new company is offering its shares for sale in an initial public offering (IPO) through an auction. There is a 50% probability that the company will be very successful, in which case each share is worth $28. Otherwise, each share is worth $0. You are competing with professional investors such as hedge funds that know if the company will be successful or not. Part 1 If you bid $14 per share, what is your expected return?
A new company is offering its shares for sale in an initial public offering (IPO) through an auction. There is a 50% probability that the company will be very successful, in which case each share is worth $28. Otherwise, each share is worth $0. You are competing with professional investors such as hedge funds that know if the company will be successful or not. Part 1 If you bid $14 per share, what is your expected return?
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter18: Auctions
Section: Chapter Questions
Problem 18.1IP
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A new company is offering its shares for sale in an initial public offering (IPO) through an auction. There is a 50% probability that the company will be very successful, in which case each share is worth $28. Otherwise, each share is worth $0. You are competing with professional investors such as hedge funds that know if the company will be successful or not.
Part 1
If you bid $14 per share, what is your expected return?
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