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 the overpriced issue,how much of the underpriced issue must he be awarded in order to gain $500?

Question

Quizplus · Accepted Answer

Let x be the amount of underpriced IPOs needed to gain $500.

To earn $500, the investor needs to have a profit of $500.

For the overpriced IPOs, the investor has a loss of 10% on $2,000, which is $200.

So, the investor needs to have a profit of $500 + $200 = $700 on the underpriced IPOs.

If the investor earns 20% on the underpriced IPOs, then the profit would be 0.2x.

Now we can set up an equation to solve for x:

0.2x = $700

x = $700 / 0.2

x = $3,500

Therefore, the investor needs to be awarded $3,500 worth of underpriced IPOs.

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