4. IPO Underpricing [L03] The Woods Co. and the Mickelson Co. have both announced IPOs at $40 per share. One of these is undervalued by $11, and the other is overvalued by $3, but you have no way of knowing which is which. You plan to buy 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be ï¬lled. If you could get 1,000 shares in Woods and 1,000 shares in Mickelson, what would your proï¬t be? What proï¬t do you actually expect? What principle have you illustrated?
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