If an Investor Can Earn 20% on Underpriced IPOs, but Will

question 20

Multiple Choice

If an investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs in which he was awarded $2,000 worth of shares, how much of the underpriced issue must he be awarded in order to gain $500 total?

• A) $1,500
• B) $2,500
• C) $3,500
• D)$10,000

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Definitions:

Simple CAPM

A model that describes the relationship between the risk of a security and its expected return, based on the premise that markets are efficient.

Risk-free Rate

The theoretical return on an investment with zero risk, typically represented by the yield on government bonds.

Expected Return

The expected return is the anticipated average return on an investment, considering both the probability of each outcome and the return of each outcome.

Risk-free Rate

The theoretical rate of return on an investment with zero risk, typically represented by government bonds.