1. Eli Lilly, Inc shows the following history of dividends and stock price.

Year	Beginning Year Stock Price	Dividend Paid at Year End
2012	$100	$4
2013	$110	$4
2014	$90	$4
2015	$95	$4

a.) An investor buys three shares of XYZ at the beginning of 2012, buys another two shares at the beginning of 2013, sells one share at the beginning of 204, and sells all four remaining shares at the beginning of 2014. b. )What are the arithmetic and geometric average time-weighted rates of return for this investor? c.) What is the dollar-weighted rate of return? (Hint: Prepare a chart of cash flows for the four dates corresponding to the turns of the year for Jan 1, 2012, to Jan 1, 2015. If your calculator cant find the IRR, you will have to use a spreadsheet and trial and error.)

2. Assume that you have a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-Bill rate is 7%.

Your client chose to invest 70% of a portfolio in your fund and 30% in a T-Bill money market fund.

a.) What are the expected return and standard deviation of your clients portfolio? b.) Suppose your risky portfolio includes the following investments in the given proportions: Caterpillar, Inc: 27% John Deere: 33% Portola Pharmaceuticals: 40% c.) What is the Sharpe ratio (S) of your risky portfolio and your clients overall portfolio? d.) Draw the CAL of your portfolio on an expected return/standard deviation diagram. What is the slope of the CAL? Show the position of your client on your funds CAL?

3. Refer to the situation in problem two You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected return of 13% with a standard deviation of 25%. Draw the CML and your funds CAL on an expected return/standard deviation diagram.

a.) What is the slope of the CML? b.) Characterize in a paragraph the advantage of your fund over the passive fund.