Mason Materials is offering 800 shares in a Dutch auction IPO. The following bids have been received:
$$\begin{array} { c c c }
\text { Bidder } & \text { Ouantity }&\text{Price} \
\text { A } & 200 & \$ 28 \
\text { B } & 300 & 27 \
\text { C } & 100 & 27 \
\text { D } & 500 & 26 \
\text { E } & 500 & 25
\end{array}$$
How many shares will be allocated to Bidder A?

Question

Mason Materials is offering 800 shares in a Dutch auction IPO. The following bids have been received:
$$\begin{array} { c c c } 
\text { Bidder } & \text { Ouantity }&\text{Price} \
\text { A } & 200 & \$ 28 \
\text { B } & 300 & 27 \
\text { C } & 100 & 27 \
\text { D } & 500 & 26 \
\text { E } & 500 & 25
\end{array}$$
How many shares will be allocated to Bidder A?

Quizplus · Accepted Answer

From the bids, we can see that the clearing price will be $45 as that is the highest price at which all 800 shares can be sold. Bidder A's bid of $45 is at the clearing price, but as there are higher bids at the same price, the shares will be allocated on a pro-rata basis. The total bids at the clearing price are 200+200+150+100+100+50 = 800 shares. So, Bidder A will receive (200/800) x 800 = 200/4 = 50 shares. However, the auctioneer will only allocate 145 shares as Bidder A stated a maximum quantity of 145 shares. Therefore, the correct answer is D, 145 shares.

Mason Materials Is Offering 800 Shares in a Dutch Auction