Offered as supporting arguments in favor of IPO underpricing

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Reference no: EM132068538

1. Which of the following have been offered as supporting arguments in favor of IPO underpricing?

I. Underpricing counteracts the "winner's curse".

II. Underpricing rewards institutional investors for sharing their opinions of a stock's market value.

III. Underpricing diminishes the underwriting risk of a firm commitment underwriting. IV. Underpricing reduces the probability that investors will sue the underwriters.

A. I and III only

B. II and IV only

C. I and II only

D. I, II, and III only

E. I, II, III, and IV

2. A U.S. firm has sold an Italian firm €1,000,000 worth of product. In one year the U.S. firm gets paid. To hedge, the U.S. firm bought put options on the euro with a strike price of $1.65. They paid an option premium $0.01 per euro. If at maturity, the exchange rate is $1.60. Assume zero interest rate.

A) the firm will realize $1,660,000 on the sale net of the cost of hedging.

B) the firm will realize $1,590,000 on the sale net of the cost of hedging.

C) the firm will realize $1,640,000 on the sale net of the cost of hedging.

D) none of the options

3. A call option to buy £10,000 at a strike price of $1.80 = £1.00 is equivalent to

A) a put option on £10,000 at a strike price of $1.80 = £1.00.

B) a call option on $18,000 at a strike price of $1.80 = £1.00.

C) a put option to sell $18,000 at a strike price of $1 = £0.5556.

D) none of the options

Reference no: EM132068538

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