U.S.-based investment banks have undergone what many would consider substantive changes in the last
eleven years, over the period 2007 to 2018. This period coincides with the Great Recession, which was a
significant driver of changes to investment bank business and characteristics. Such changes include
wider fluctuations in mergers and acquisitions, reduced initial public offering underwriting, reductions in
staffing, and associated impact on investment bank balance sheets.
Answer the following questions for a fictitious public offering, and show all calculations:
An investment bank offers underwrites an IPO of up to 18.5m shares for ABC Company at a price of
$12.50 per share. Show the $ return to the investment bank under both scenarios:
- The 18.5m shares sell at $13.25 per share.
- What happens if the IPO price is overstated and the shares sell for $12.25 per share?
Sample Solution
