Question

the bert corporation and ernie, incorporated, have both announced ipos. you place an order for 800 shares of each ipo. one of the ipos is underpriced by $16.25 and the other is overpriced by $7.00. you will receive all of the shares you ordered of the overpriced ipo, but only one-half of the shares you ordered of the underpriced ipo. what profit do you expect?

Answer 1

The answer is $900 profit.

Here Bert will be able to get $900 profits by comparing her both portfolios.

For the overpriced IPO,800 shares would be received and since the share was overpriced by $7.00, an instant loss of $5,600 ($7.00*1800) is recorded.

For the under-priced IPO,400 shares (800 shares divided by 2) would be received and the immediate gain recorded is $6,500 (400 *$16.25)

Overall the two portfolios, when taken together, give an immediate gain of $900(a gain of $6,500 less a loss of $5,600 )

This is the power of portfolio diversification, which manages potential investment losses by spreading one's investment.

To learn more about the portfolio please click on the given link: brainly.com/question/29333981

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