A firm conducting an IPO of common stock sold 1 million new shares in the offering at an offer price of $10 per share.After the offering,the firm had 5 million shares outstanding,and the price of those shares in the secondary market was $12.The firm's IPO was underpriced by ________.

Question

Quizplus · Accepted Answer

The underpricing can be calculated as the difference between the offer price and the secondary market price, divided by the offer price, and multiplied by 100.

Underpricing = (($12 - $10)/$10) x 100% = 20%

Therefore, the IPO was underpriced by 20%.

A Firm Conducting an IPO of Common Stock Sold 1