7. Suppose you short sell 100 shares of IBM, now selling at $120 per share.

7.1. What is your maximum possible loss? (2)

7.2. What happens to the maximum loss if you simultaneously place a stop-buy order at $128?

(2)

8. Explain why geometric average return a better indicator is of long-term investment returns

than arithmetic average. In your answer, also refer to what cause the difference between

arithmetic and geometric returns (4)