If Shares in Successful IPOs Are Oversubscribed by a Factor

question 9

Multiple Choice

If shares in successful IPOs are oversubscribed by a factor of 5 and if offerings either appreciate or depreciate by 10% on the first day of trading, what would you expect your rate of return to
Be without IPO underpricing, assuming fair rationing? (Assume half of the offerings are
Successful.)

• A)-4%
• B)-1%
• C)-5%
• D)+1%

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Definitions:

Common Law

A legal system characterized by judicial decisions that are cited as precedent, originating in England and forming the basis of the legal system in the US and other countries.

Agency Law Judge

An administrative judge who presides over federal administrative agency hearings, making decisions on disputes between agencies and parties.

Ripeness

A legal principle that courts use to determine if a case has matured into a controversy worthy of adjudication.

Fourth Branch

A term sometimes used to refer to groups that influence government outside of the officially recognized branches, such as the media or public opinion.