Question

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?

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