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Two IPOs will commence trading next week. Scott places an order to buy 600 shares of...

Two IPOs will commence trading next week. Scott places an order to buy 600 shares of IPO A. Steve places an order to purchase 600 shares of IPO A and 600 shares of IPO B. Both IPOs are priced at $21 a share. Scott is allocated 300 shares of IPO A. Steve is allocated 300 shares of IPO A and 600 shares of IPO B. At the end of the first day of trading, IPO A is selling for $23.30 a share and IPO B is selling for $17.75 a share. How much additional profit did Steve have at the end of the first day of trading as compared to Scott?

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Answer #1

Solution:

Value of shares held by Scott = 300*21= $6300

Value of shares held by Steve = 300*21+600*21= $18900

Total value = 6300+18900= $25,200

Now selling price of IPO A is $23.30 and IPO B is $17.75

Scott = 300*23.30= $6990

Steve = 300*23.30 + 600*17.75= $17,640

Total sell value = $6990 + $ 17,640= $24,630

Scott additional profit or loss = $6990-$6300= $690

Steve additional profit or loss = $17,640-$18,900= -$1260

Total additional profit or Loss = $690+ (-$1260)= -$ 570

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