1. A company is planning an IPO of 12 million shares. Each share is expected to sell at $18 per share. The investment banker will charge a 9% spread and incur expenses of $10,000,000. The company will incur expenses of $2,000,000. How much will the investment banker receive if all shares sell at the expected price?

$100,000,000

$7,440,000

$1,080,000

$9,440,000

None of the above

2. CAPM and Security Pricing Stock A has an expected return of 27% and a beta of 1.8. Stock B has an expected return of 27% and a beta of 1.8 when the risk free rate is 5%. Which of the following statements are correct?

I. Stock A is underpriced relative to Stock B

II. Stock B is underpriced relative to Stock A

III. This situation is inconsistent with the CAPM

IV. This situation is consistent with the CAPM