Investment Decision

1. Timing risk is the risk that arises during the trade in mortgage securities. They are defined in terms of the consequences leading to their occurrence. For extension risks, this is the risk that occurs as a result of rise in the interest rate which would lead to a direct influence on the slow rate of repayments on bonds which may go beyond the structured or planned time for their maturity. This will consequently lead to a low yield on the mortgage security or assets, which would mean that, the principal capital investment will face a longer commitment period than would actually have being expected thereof.

Consequently, these investors will be unable to therefore trade on new security/assets issues in the market which could possible be of even high interest rates than the previous trade prices on the other bonds. However, for CMO securities, this problem is solved through the incidence where it trades on behalf of its share holders on the high interest paying shares against what they currently posses as assets for these share holder. 2. The exchange-traded funds have various advantages. Firstly, they are highly tax efficiency.

Investors enjoy a low tax levy that implies their efficiency when compared to index funds. For index funds, they are normally associated with low turnover benefits. However, for big traders in EFT’s they are able to get various kinds of redemptions (In kind). Consequently, such big traders of EFT’s can thus have redemption for those shares in stock that are tracked by the EFT’s. This helps to reduce incidences of tax levy to the investment stock since such taxes can be differed to the future period on until the sale of this investment.

Either an investor chooses ETF’s with lower capital gains or else choose to pay other forms of dividends. Secondly, ETF’s are pronounced in their diversification. Since their investment involves a diversified case business portifolio in the market place, ETF’s are found in many numbers covering almost all the major indices as well as different sectors of market equities. ETF’s are either specific, international or in terms regional ETF’s. Either, specific industries are also covered by specialized ETFs. Hereby, ETF’s comes in various options and are only limited to the investment traded within the market.

All bonds systems can be adequately depended on the mode of diversified EFT where various bonds can be defined in terms of their periods of maturity. 3(a). One round lot of the out- of- the- money; in the intel option will yield, Total of call- Total of put =(1357×7. 125)-(377×3. 5)= 1224 For 500 shares is (=) price of 1 share x 500 share (number) = 1224X 500= $612062. 5 (b) Since the out-of-the money put on Intel, will take a longer period, this would imply lack of quick payments to the relevant shareholders in the alternative move of trading to other higher interest paying investments.

Paying a higher amount for such money would imply a compensation for the loss that could incur in the withholding of their money 4. a)    Since the initial margin requirement is 65% therefore 500 @ & 28 per share is 65 of the total stock implies that total stock is 100/65×500=76. 92 b)    65%margincal call for 500 shares is & 28 @ share 40% margin call for 500 shares will yield 40/65x 28=17. 23 c)    Holding period is the period ranging from when an asset is purchased and when it is sold.

Investment holding period is basically useful in evaluating the performance of such investments, possible calculations of the gain and losses got from the investment i. Holding period return on investments – is HPR = (Ending price + cash dividend – the beginning price)/the beginning price. Ending price is $30 Beginning price is $28 Cash dividend is zero (0) HPR = (30 – 28 + 0)/28 = 2/28 = 0. 071 ii    total number of shares is 500 Price per share (common stock) is 28 Stop price is 30 Commission period is $10 Total price of common stock at the beginning.

500x$28 = $14000 Total price at stoppage     $500×30    =$15,000 HPR on stock in     = value of the ending investment       = 15000 =    1. 0714 Value of beginning investment     $14000 For the difference arising in the two positions can be attributed to firstly, the trading rules existing in the market. Various rules for trading in the holding period return in terms of stock or investment. Various trading rules pronounced by the government, companies and the market theory could dictate the prices on investment and stock return difference hence a difference in their HPR.

(Mazza, Porco, 2004) Either, the difference in the two above could be brought about by the challenges of market asymmetries. Due to various asymmetries, the stock and investment holding period return could be different. Due to the difference in such, the market system can work to favor or disfavor the functional capacity of either portfolio.


Mazza, C and Porco, B (2004) An assessment of the transparency of comprehensive income reporting practices of U. S. companies. Working paper, Fordham University.