Question

What is the average first day return on IPO’s?

Group of answer choices

20%

15%

-5%

13%

8.5%

Answer 1

The correct answer would be b) 15%

But we should know that it is very subjective, here are a few stats

Average first-day return is 14.1%. 

About 10% of IPOs have first-day returns greater than 30%. 

For some companies, the first-day return is well over 100%.

There is an inherent conflict of interest, because the banker has an incentive to set a low price to make brokerage customers happy and it is easy to sell the issue. 

Firm would like price to be high as promoters are usually selling their stake