Four analysts are examining an upcoming IPO for SunEx Enterprises Ltd. (Ticker: SEE). Their valuations are as follows, along with your own impression of the reliability of their historical valuations of other IPOs. Calculate the expected opening price. (Round your answer to two decimal places) [table]
Analyst: | Valuation/share: | Historical reliability Blue Analysts | $13.00 | Poor Green Analysts | $13.85 | Good Yellow Analysts | $14.75 | Good Red Analysts | $18.85 | Good
[/table]

Question

BlackTom AI · Accepted Answer

First, let's restate the scenario and identify the given valuations and their stated reliability.
- Blue Analysts: $13.00 per share, reliability = Poor
- Green Analysts: $13.85 per share, reliability = Good
- Yellow Analysts: $14.75 per share, reliability = Good
- Red Analysts: $18.85 per share, reliability = Good

Next, we need to determine how to combine these valuations into an expected opening price. Since the only explicit reliability labels are "Poor" and "Good," a common approach is to weight valuations by reliability, assigning zero weight to Poor and full weight to Good, effectively giving more influence to valuations deemed reliable.
- Weights: Poor = 0 for Blue; Good = 1 for Green, Yellow, and Red
- Total weight sum = 0 + 1 + 1 + 1 = 3

Now compute the weighted average using the Good-valued estimates:
- Sum of Good valuations = Green (13.85) + Yellow (14.75) + Red (18.85) = 47.45
- Weighted average = 47.45 / 3 = 15.8166...

Rounding to two decimal places as requested: 15.82

Thus, the expected opening price, based on weighting by reliability with Poor contributing zero, is 15.82 per share. If one considered alternative weighting schemes (e.g., nonzero weights for Poor or different weights for Good), the result would differ, but given the stated reliabilities, this approach aligns with favoring reliable (Good) analyses.

Note: If the problem intended a different weighting rule (such as assigning partial weights to Poor or using a straight average), the calculation would change; however, the provided solution matches the common interpretation of reliability-based weighting here.

BFX3301 - S2 2025 Week 8 - Pre-class test (10 minutes) - 3%

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