Question

On​ average, between 1960 and​ 2003, the price in the US aftermarket at the end of the first day of trading following an IPO was​ 18.3% higher than the IPO price. Who benefits from this apparent underpricing of​ IPOs? ​(Choose all correct​ responses.) A. Stockbrokers benefit because more shares are sold and they therefore receive more commission. B. Investors benefit because they are able to buy the shares at the IPO price. C. Underwriters benefit because they are able to control the risk​ - it is much easier to sell the shares if the price is set low. D. The​ pre-IPO shareholders benefit because they are able to sell more shares than they would be able to if the price was​ higher, and therefore they can raise more capital

Answer 1

Who benefits from this apparent underpricing of​ IPOs?

Ans.  A. Stockbrokers benefit because more shares are sold and they therefore receive more commission.

B. Investors benefit because they are able to buy the shares at the IPO price.

C. Underwriters benefit because they are able to control the risk​ - it is much easier to sell the shares if the price is set low.

last option is incorrect because there is no such thing as pre IPO shareholdres. The company who lists its stock on the IPO does not get the direct benefit. All the trading is between investors. The company only gets the cash when the big investors take the huge blocks of stock and the cash comes into the company's bank account,