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Unformatted text preview: Financial Economics V 3025 Fall 2009 Rajiv Sethi 5B Lehman Phone: 854 5140 [email protected] Midterm Exam 1. An investor with $7000 in her account decides to sell short 200 shares of an asset that is currently priced at $40 per share. What does her balance sheet look like immediately after the trade? If the maintenance margin is 50%, how high can the share price rise before she receives a margin call? 2. An investor has access to two risky assets P and Q with the following statistical properties: E ( r p ) = 10% ; & p = 5% ; E ( r q ) = 20% ; & q = 20% : She can combine either of these assets with bills that pay a risk-free rate of 5%. State whether the following statements are true or false, and give reasons. (a) \If the investor prefers P to all combinations of bills and Q , then she must be risk-averse." (b) \If the investor prefers Q to all combinations of bills and P , then she cannot be risk-averse." (c) \The investor’s optimal choice cannot be a portfolio that has weight 4 5 in bills and...
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- Winter '09
- risk-free rate, Financial terminology