A hedge fund has a capital of 100 million and invests in a market-neutral long/short strategy on the European equity market. Shares can be borrowed from a primary broker. The arrangement with the primary broker is that the hedge fund deposits as guarantee securities with an equivalent market value at time of lending, plus an additional cash margin deposit equal to 10% of the value of the shares. The primary broker keeps any interest earned on the margin and charges a fee equal to an annual rate of 0.5% of the value of the shares borrowed. The hedge fund believes that European value stocks will outperform European growth stocks. The hedge fund expects that value stocks will outperform growth stocks by 5% over the year. The hedge fund wishes to retain a cash cushion of 10 million for unforeseen events. The short-term euro interest rate is 3%. What market-neutral strategy would you suggest that would take full advantage of this scenario? I. The hedge fund would sell short growth stocks and use the proceeds to buy value stocks at an equal amount. II. Some capital needs to be invested in the margin deposit. III. The hedge fund has 90 million that can be used for cash margin with the primary broker. So the hedge fund can borrow up to 900 million worth of shares. IV. Furthermore, the hedge fund wishes to retain 10 million.

		I and IV only
		II and III only
		I, II, and III only
		I, II, III, and IV