Rock's model

An IPO of 100 shares is worth ₹120 (good) or ₹80 (bad) with equal probability. Informed investors demand 150 shares in the good state and none in the bad state; uninformed investors demand 100 shares in both. Allocation is pro rata. (a) Compute the uninformed allocation fractions and the break-even issue price. (b) Compute the average first-day return and the returns in each state. (c) Prove that the break-even price lies below the expected value whenever rationing is heavier in the good state. (d) Indian retail IPO allotment is by lottery of minimum lots when oversubscribed. Does this change the winner's-curse logic? Explain.