Final answer:
The first-day 'pop' of 18% means the share price increased by 18% from the IPO offer price, ending the day at £118 per share. This indicates strong investor demand and potential undervaluation of the IPO price. The rate of return is not guaranteed and decisions in a company with many shareholders are made by an elected board of directors.
Step-by-step explanation:
Understanding the IPO 'Pop'
When a company undergoes an Initial Public Offering (IPO), it is selling shares to the public for the first time. In the scenario provided, the company offered shares at £100 each and sold 200,000 shares. A first-day 'pop' of 18% indicates that the share price increased by 18% above the offer price on its first trading day.
This means the share price ended the day at £118 (£100 + 18% of £100). The 'pop' shows strong investor demand and optimism about the company's future prospects, but it also suggests that the shares may have been undervalued by the company and its underwriters at the time of the IPO.
It is important to understand that the rate of return promised when a company sells stock is not fixed or guaranteed. Shareholders earn returns based on dividend payments (if any) and share price appreciation, both of which are dependent on the company's performance and market conditions.
In a company owned by a large number of shareholders, decisions are typically made by a board of directors elected by the shareholders. The management team, led by the CEO, handles the day-to-day operations. The board's role is to represent shareholders and make decisions on major company issues, such as corporate policy and strategy.