Question

Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market. a. overpriced b. correctly priced *c. underpriced d. mispriced, but without any particular bias

Answer 1

Initial public offerings (IPOs) are usually underpriced relative to their post-IPO trading price due to the risks involved.

Step-by-step explanation:

Initial public offerings (IPOs) are usually underpriced relative to the levels at which their prices stabilize after they begin trading in the secondary market.

Small companies may choose to do an IPO early on, but because of the risks involved, people are often unwilling to pay a high price for the stock.

This leads to the stock being undervalued or underpriced compared to its post-IPO trading price.