Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 20, Problem 10CQ
IPO Pricing The following material represents the cover page and summary of the prospectus for the initial public offering of the Pest Investigation Control Corporation (PICC), which is going public tomorrow with a firm commitment initial public offering managed by the investment banking firm of Erlanger and Ritter.
Answer the following questions:
- a. Assume that you know nothing about PICC other than the information contained in the prospectus. Based on your knowledge of finance, what is your prediction for the price of PICC tomorrow? Provide a short explanation of why you think this will occur.
- b. Assume that you have several thousand dollars to invest. When you get home from class tonight, you find that your stockbroker, whom you have not talked to for weeks, has called. She has left a message that PICC is going public tomorrow and that she can get you several hundred shares at the offering price if you call her back first thing in the morning. Discuss the merits of this opportunity.
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Here is some price information on FinCorp stock. Suppose that FinCorp trades in a dealer market.Bid =55.25
Ask= 55.50a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed?b. Suppose you have submitted an order to sell at market. At what price will your trade be executed?c. Suppose you have submitted a limit order to sell at $55.62. What will happen?d. Suppose you have submitted a limit order to buy at $55.37. What will happen?
a) You observe the following quotes for the USD/AUD in the spot market from two banks:
Bank of Sydney
Bank of New York
Bid
Ask
Bid
Ask
0.71711
0.71715
0.71708
0.71715
Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible?
(b) You observe the following quotes for the GBP /AUD in the spot market from two banks:
Bank of Melbourne
Bank of London
Bid
Ask
Bid
Ask
0.5458
0.5459
0.5514
0.5515
Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible?
c) You observe the following quotes for the EUR / USD in the spot market from two banks:
Deutsche Bank
Bank of America
Bid
Ask
Bid
Ask
1.18102
1.18102
1.18094
1.18100
Do these quotes imply the…
Here is some price information on Fincorp stock. Suppose that Fincorp trades in a dealer market. Bid Ask 36.33 36.68 Required: Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? Suppose you have submitted an order to sell at market. At what price will your trade be executed? Suppose you have submitted a limit order to sell at $36.76.What will happen? Suppose you have submitted a limit order to buy at $36.61. What will happen?
Chapter 20 Solutions
Corporate Finance
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