a)A new investor lined up at the Dyer and Blair Investment counter to buy his first set

ofsecurities everinhis life.Whileatthequeue, heoverheardaconversationfrom somepeople,alsointhequeue,regardingthesharesofGlovultdthathehadn't consideredbuying.Oneofthemenretorted,"ThisGlovultdjustmadeashare repurchase and I think I should increase my holding therein as the prices are going to increaseinashortwhile".Hiscolleaguenoddedinapprovalandretortedthathe didn't have any current holdings in that counter, but he too was going to seek margin purchases of that security to make a profit on the obvious upside.

This conversation created a great deal of anxietyand confusion to the new investor and for some time, he contemplated changing his mind on the choice of securities.

Required:

Tenderawell-reasonedcasehighlightingthebestcourseofactionavailableto this

newinvestor.Ifpossibleanchoryour responseonappropriate theorywithpractical but hypothetical examples.(10 Marks)

b)Theoverparameterizationin financialoptions renders themodels useless indealing with Real Options Analysis where flexibility is a prerequisite. Discuss the validity or otherwise of the above assertion.(10 Marks)