Your investment bankers price your IPO at 

​$14.9114.91 

per share for 

10.610.6 

million shares. If the price at the end of the first day of trading is 

​$16.9116.91 

per​ share,

**a.** What was the percentage​ underpricing?

**b.** How much money did the firm miss out on due to​ underpricing?

Question content area bottom

Part 1

**a.** What was the percentage​ underpricing?

As a percent of the offering​ price, the underpricing is 

enter your response here​%. 

 ​(Round to one decimal​ place.)

**a.** To calculate the percentage underpricing, we use the following formula:

\[
\text{Percentage Underpricing} = \left( \frac{\text{First Day Closing Price} - \text{IPO Price}}{\text{IPO Price}} \right) \times 100
\]

Where:
- First Day Closing Price = $16.91
- IPO Price = $14.91

Now, applying the values:

\[
\text{Percentage Underpricing} = \left( \frac{16.91 - 14.91}{14.91} \right) \times 100
\]

Let me calculate this.The percentage underpricing is approximately **13.4%**.

**b.** Now, let's calculate how much money the firm missed out on due to the underpricing. This is given by the difference between the actual market value after the first day of trading and the initial IPO value, multiplied by the number of shares:

\[
\text{Missed Money} = (\text{First Day Closing Price} - \text{IPO Price}) \times \text{Number of Shares}
\]

Where:
- First Day Closing Price = $16.91
- IPO Price = $14.91
- Number of Shares = 10.6 million

Let me calculate this for you.The firm missed out on **$21.2 million** due to the underpricing.

Would you like any more details or clarifications?

Here are 5 related questions you might find useful:
1. What factors contribute to underpricing in IPOs?
2. How does underpricing benefit initial investors?
3. What is the average underpricing percentage in the stock market?
4. How can firms reduce the risk of underpricing during an IPO?
5. How does underpricing affect the long-term performance of a stock?

**Tip:** IPO underpricing often occurs due to uncertainty and risk perceived by investors, but it can also be a strategic move to create demand and positive market buzz.

Your investment bankers price your IPO at $14.91 per share for 10.6 million shares. If the price at the end of the first day of trading is $16.91 per share, a. What was the percentage underpricing? b. How much money did the firm miss out on due to underpricing?

Learn how to calculate the percentage underpricing for an IPO priced at $14.91 per share with a first-day closing price of $16.91. Discover how the firm missed out on $21.2 million due to underpricing, and explore key mathematical concepts such as percentage calculation and IPO valuation. Suitable for high school students in Grades 10-12.

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