1)C,introduce one of the variables whose relationship to IPO pricing surprised the researchers,since it gives a surprise to the researchers that why underpricing was there and what are parameters to compelete the study.

2)a)No,since with prestigious board negative correlation was there and it was not increasing the likelihood
b)No,it set a higher price
c)Yes,Firststone and Mumias sugar are exceptions

3)a) Supported beacuse safaricom had more underpricing
b)Not supported since there is nothing mentioned about firm size
c)Not supported since that might be less supported and effect could be from board prestige

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1. The discussion of the researchers' study of Kenyan IPOs refers to "board prestige" primarily to

A. help explain why investor sentiment toward some firms is sometimes very low
B. caution that some variables should not be considered accurate predictors of IPO pricing
C. introduce one of the variables whose relationship to IPO pricing surprised the researchers
D. point to one of the attributes firms often used to generate investor interest in their IPO
E. demonstrate that some attributes of a firm are often negatively correlated with the firm's IPO price


Correct Answer - C,
Explanation - as mentioned in the para: They hypothesized that all four variables would show a strong positive correlation with this IPO asking price. However, after examing the firms listed, they were surprised to find that none of the variables showed a strong positive correlation with IPO pricing, and in fact investor sentiment and board prestige both showed a strong negative correlation.



2. For each of the following statements, select Inferable if the statement is reasonably inferable from the information provided about the NSE IPOs. Otherwise select Not Inferable.

1. No - since as we saw, the board prestige had a negative effect on pricing.
2. No - its the opposite as we can infer from the last row of the table.
3. Yes - Firestone, and Mumias Sugar have -1.41 and 0.00% underpricing.


3. For each of the following statements, select Supported if the statement is supported by the information provided about NSE IPOs. Otherwise select Not supported.

1. Supported, as we can infer from the table row of Safaricom and Co-operative bank and the information in the passage above, that the mentioned statement is supported by the information.
2. Not Supported, nothing is mentioned in the passage w.r.t firm size and its effect of the pricing of IPO's.
3. Not Supported, as we cannot explicitly infer, if it was actually from the investor sentiment or other factors like board pricing (which is actually mentioned).

Can someone please explain, how the below statements have the opposite answers? Either both should be Yes( and in my opinion Yes should be the answer ) or both should be No.

"IPOs of firms with prestigious boards were more likely to be underpriced than those of other firms"

"The board of Safaricom was likely considered more prestigious than that of Co-Operative Bank at the time of their IPOs"

Hi Suryanshi,

1. The answer to :"IPOs of firms with prestigious boards were more likely to be underpriced than those of other firms" would be No, as its mentioned in the IPO Pricing passage: "However, after examing the firms listed, they were surprised to find that none of the variables showed a strong positive correlation with IPO pricing, and in fact investor sentiment and board prestige both showed a strong negative correlation."
=> the board prestige had a negative effect on pricing.


2. The answer to : "The board of Safaricom was likely considered more prestigious than that of Co-Operative Bank at the time of their IPOs" - this would true, i.e supported as asked in the question, since we can infer from the table row of Safaricom and Co-operative bank and the information in the passage above, that the mentioned statement is supported by the information.

Hope it helps.
thanks.

Hi bm2201,

Thank you for the explanation. Really appreciate that. But I am still not able to understand and here is the reason.

What I deduce from below line ""However, after examing the firms listed, they were surprised to find that none of the variables showed a strong positive correlation with IPO pricing, and in fact investor sentiment and board prestige both showed a strong negative correlation" is that since board prestige has a negative correlation with IPO pricing, so if board prestige is high, IPO pricing will be low and this is what sentence "IPOs of firms with prestigious boards were more likely to be underpriced than those of other firms" says.

Seeing the data of Co-operative bank and Safari bank, we were able to relate the difference in their prices at the day start and day end with board prestige. Safaricom was more undervalued and therefore it was likely that its board had more prestige than co-operative bank's. That's why the answer for this statement "The board of Safaricom was likely considered more prestigious than that of Co-Operative Bank at the time of their IPOs" was Yes.

Based on above reasoning according to me answer to the first statement should also be Yes. Now, I know there must be big loophole in my understanding somewhere. Would really appreciate if you can pinpoint the same.

I agree with the OA that the first answer of Q2 should be no; but it is the answer in Q3 that is questionable.

According to the prompt, there are 2 factors that negatively relate to asking price (lower asking price --> more likely underpriced):
1. investor sentiment
2. prestigious board
The board itself will not be able to affect the asking pricing alone - one must consider the investor sentiment. Therefore, the board itself is not an indicator of the asking price and the answer should be no.

However, the first OA for Q3 contradicts such logic, for it assumes that the board is the only factor affecting asking price (thus the underpricing). What if the primary reason for Safaricom's underpricing is investor sentiment while the primary reason for Co-Operative Bank's underpricing is the board?

I don't understand question number 2

2. For each of the following statements, select Inferable if the statement is reasonably inferable from the information provided about the NSE IPOs. Otherwise select Not Inferable.

"IPOs of firms with prestigious boards were more likely to be underpriced than those of other firms."
According to the passage, it tells that
However, after examining the
(15) firms listed, they were surprised to find that
(16) none of the variables showed a strong positive
(17) correlation with IPO pricing, and in fact investor
(18) sentiment and board prestige both showed a
(19) strong negative correlation.

Therefore, prestigious boards do negatively affect to the IPO price and then make the firms underpriced.

Why the answer is no