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1-Now, before 1 year passes,% gain = % change in price ×

Total investment = % change in price Investor' s initial equity
3-if investor borrowed at a rate of 8% If the share price falls to $30, then the value of the stock falls to $9,000. By the end of the year, the amount of the loan owed to the broker grows to:($4,000 × 1.08) = $4,320.Therefore, the remaining margin in the investor’s account is: ($9,000 − $4,320) = $4,680.The percentage margin is now: ($4,680/$9,000) = 0.52 = 52%. Max r2v:

w =
* D

[ E (r

D

) − rf

[ E (r ) − r ]σ − [ E (r ) − r ] cov(r , r ) ]σ + [ E (r ) − r ]σ − [ E (r ) − r + E (r ) − r ] cov(r
D f 2 E E f D E 2 E E f 2 D D f E f

D

, rE )

a-Even though it seems that gold is dominated by stocks, gold might still be an attractive asset to hold as a part of a portfolio. If the correlation between gold and stocks is sufficiently low, gold will be held as a component in a portfolio, specifically, the optimal tangency portfolio.b. If the correlation between gold and stocks equals +1, then no one would hold gold.The optimal CAL would be comprised of bills and stocks only. Since the set of risk/return combinations of stocks and gold would plot as a straight line with a negative slope (see the following graph), these combinations would be dominated by the stock portfolio. Of course, this situation could not persist. If no one desired gold, its price would fall and its expected rate of return would increase until it became sufficiently attractive to include in a portfolio.Treasury Bills: The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury Bill holder the full face value.The Treasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns.Certificate of Deposit: The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk. Commercial Paper: Commercial Paper is short-term loan that is issued by a corporation use for financing accounts receivable and inventories. Commercial Papers have higher denominations as compared to the Treasury Bills and the Certificate of Deposit. The maturity period of Commercial Papers are a maximum of 9 months. They are very safe since the financial situation of the corporation can be anticipated over a few months.Banker's Acceptance: It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker's Acceptance is traded in the Secondary market. The banker's acceptance is mostly used to finance exports, imports and other transactions in goods. The banker's acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable.Euro Dollars: The Eurodollars are basically dollardenominated deposits that are held in banks outside the United States. Since the Eurodollar market is free from any stringent regulations, the banks can operate at narrower margins as compared to the banks in U.S. The Eurodollars are traded at very high denominations and mature before six months. The Eurodollar market is within the reach of large institutions only and individual investors can access it only through money market funds.Repos: The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due government backing.best efforts An agreement an underwriter makes to act as an agent between an issuing company and investors.underwriting The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). Competitive bidA process whereby an underwriter submits a sealed bid to the issuer. The issuer awards the contract to the underwriter with the best price and contract terms. 3rd
marketTrading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors. 4thThe trading of exchange-listed securities between institutions on

Trades between institutions will often be made in large blocks and without a broker. .a private over-the-counter computer network. allowing the institutions to avoid brokerage fees. rather than over a recognized exchange such as the New York Stock Exchange (NYSE) or Nasdaq.