An investor likes the prospect of earning higher returns with a hedge fund. Although he is required to pay a fee of 2% plus 4, he went with it as a trade off with him being a more passive investor. Advice was that the fund has a 60% chance of earning 20% and a 30% change of earning 8%. There is a hurdle rate of 5%.

a.  What is the return to the hedge fund?  

b.  What is the return to the investor?


2) A trader enters a trade to purchase 1500 shares at $85 each on margin which requires an initial margin of 60% and a maintenance margin of 30%.  Show what action is any is taken if

(a) the price of the shares decline to $60

(B) the price of the shares decline to $42