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Question no 1:

Ebay initial return = 18
= 163%
SecureWorks initial return = 14
= 0%
Given initial return = 12
= 3.9%
Pacific Energy initial return = = -2.6%

I wouldnt suggest the investment strategy: "buy at the IPO and sell on the first day of trading without
an in-depth study of the targeted company. Below are my assumptions and/or considerations:

No performance history to track. It's hard enough to analyze the stock of an IPO company given that
there won't be a lot of historical information. Also there is no track record of the management team
and how they plan to use the funds generated from the IPO.
Simple average does not mean weighted average. The positive return on the simple average basis is
misleading when you actually make investment on each IPO company with varied amount of money.
Individual investor usually knows the least and could put large bet on a bad IPO which yields
negative initial return like Pacific Energy. Therefore, you may end up with a huge loss.
IPO itself is a hype. It's important to understand that underwriters are salesmen. The whole
underwriting process is intentionally hyped up to get as much attention as possible. Since IPOs only
happen once for each company, they are often sugarcoated as "once in a lifetime" opportunities.

Question no 2:
False. In certain cases, the uniform price auction yielded the revenue superior to the discriminatory
mechanism. Bidders bid depends not only on his perception of the resale price of the instrument issued
but also on the perception of other bidders price estimates. The format of uniform price auction leads
to more aggressive bidding and hence higher expected revenue for the seller because bidder has an
incentive to bid what he perceives the truth is since the price he will pay is the uniform price which is
usually lower than his aggressively high bidding price.

Question no 3:
If annual interest rate is 5%:
10,000 10,000 10,000 10,000 10,000 10,000
= (1+5%) + (1+5%)2 + (1+5%)3 + (1+5%)4 + (1+5%)5 + (1+5%)6 = 50,756.92

10, = = 200,000
0, = (1+5%)10 = 122,782.65

I would choose the perpetuity option which has a higher present value.
If annual interest rate is 10%:
10,000 10,000 10,000 10,000 10,000 10,000
= + + + + + = 43,552.61
(1+10%) (1+10%)2 (1+10%)3 (1+10%)4 (1+10%)5 (1+10%)6

10, = 10%
= 100,000
0, = (1+10%)10 = 38,554.33

I would choose the annuity option which has a higher present value.

Question no 4:
I have been following China stock market for a long time and noticed the unsuccessful implementation
of the so-called circuit breakers mechanism in early this year. As we were just taught the financial
markets in class, I thought I would like to do a little more research and share what I learned.

Stock exchange circuit breakers, apparently new to China market, has been adopted in the US for about
30 years. The purpose is to ease panic selling by taking certain steps to halt trading. Under extreme
conditions that could trigger market disruptions, exchanges can invoke Rule 48 to make it easier and
faster to open stocks. Under the revised rules approved by the SEC in 2012, market-wide circuit breakers
kick in when the S&P 500 Index drops 7 percent (Level 1), 13 percent (Level 2), and 20 percent (Level 3)
from the prior day's close. In addition, Rule 48 speeds up the opening by suspending the requirement
that stock prices be announced at the market open. Those prices have to be approved by stock market
floor managers before trading actually begins. To invoke Rule 48, an exchange would have to determine
that certain conditions exist that would cause market disruptions, which include volatility during the
previous day's trading session, substantial activity in the futures market before the open, the volume of
pre-opening indications of interest, government announcements, etc.

However, it did not perform so well in the China market. There could be a few reasons. Some observers
felt the system as designed could have increased investor jitters about the health of markets as they
would try to speculate why authorities implemented this which never happened before. Other market
strategists said that China was just learning their way around the market and set the circuit breakers too
tight (if an index rose or fell 5 percent, trading was halted for 15 minutes. If it dropped by 7 percent,
trading stopped for the rest of the day). It seems China market has been quite stable after putting the
circuit breakers to a halt and I will keep following its trend as I believe it is still an attractive financial