Question

A company offered shares in their IPO at $2.00 each. Their first sale on the ASX was at $2.20. By the end of the first day of trading their shares were trading at $2.50 and today they are trading at $2.60. The cost of under-pricing the issue was

Select one:

a. The number of shares issued multiplied by 60c

b. The number of shares issued multiplied by 50c

c. The number of shares issued multiplied by 20c

d. The number of shares issued multiplied by 30c.

Answer 1

Cost of underpricing the issue is calculated as difference in closing price of share on first day less the IPO price
In the given case the IPO price was $2 per share and the closing price at end of first day was $2.50
Underpricing cost	2.50-2
Underpricing cost	$0.50
The cost of underpricing is calculated as number of shares issued multiplied by $0.50
Thus, option (b) is correct answer