Price Range

Price Range - Fair Isle Powerknit Dress
Price Range

The minimum and maximum price at which the shares in an initial public offering (IPO) are likely to be sold to investors is the price range within which an issue is initially marketed to investors (Hanley, 1993). The price range is included in the preliminary prospectus for issues that are marketed through the bookbuilding process (Loughran and Ritter, 2002).

The expected price of the offer is then the average of the minimum and maximum price shown in the preliminary prospectus. The price at which the shares are sold to investors at the IPO can be outside or within the price range.

The final offer price could be set higher than the maximum of the price range if there is a strong demand for the shares during the book building process (Benveniste and Wilhelm, 1997). On the other hand issues, which attract little interest during the marketing period, could be priced below the minimum of the price range.


The bulk of IPOs are, however, priced within the initial price range. the investment banker usually values the shares of the ratio or other ratios of comparable firms that are already trading on the stock market. This valuation information is then used to set the initial price range for the issue.

The comparable firm valuation approach is more widely used than discounted cash flow approaches because it can be applied to companies that do not provide positive initial cashflows. IPO firm on the basis of the price-earnings ratio or other ratios of comparable firms that are already trading on the stock market.

This valuation information is then used to set the initial price range for the issue. The comparable firm valuation approach is more widely used than discounted cash flow approaches because it can be applied to companies that do not provide positive initial cashflows.
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