CHAPTER17

EQUITYPORTFOLIOMANAGEMENT

PassiveversusActiveManagement
PassiveEquityPortfolioManagement(Longtermbuyandhold
strategy)
ActiveEquityPortfolioManagement(Attemptstooutperforma
passivebenchmarkportfolioadjustedforrisk)
OverviewofPassiveEquityPortfolioManagementStrategies
IndexingPortfolioStrategy
PassiveIndexPortfolio
Fullreplication
Sampling
Quadraticoptimizationorprogramming
OverviewofActiveEquityPortfolioManagementStrategies
PracticalDifficultiesofActiveManagement
Highertransactioncostsandhigherrisk
KeytoSuccess
Beconsistent
Minimizetradingactivity
ThreeStrategies
Timethemarket
Catchthe"hot"concept
Stockpicking
GlobalInvesting
Overweight/underweightcountriesinportfolio
Industryratherthancountryapproach
Sectorrotationstrategy

Styles(styleinvesting)
DoesStyleMatter?
TimingBetweenStyles
ValueversusGrowth

10

ExpectationalAnalysisandValue/GrowthInvesting
FuturesandOptionsinEquityPortfolioManagement
ModifyingPortfolioRiskandReturn:AReview
TheUseofFuturesinAssetAllocation
TheUseofDerivativesinEquityPortfolios
HedgingPortfolioInflows
HedgingPortfolioOutflows
TheStandard&Poor's500IndexFuturesContract
DeterminingHowManyContractstoTradetoHedgea
DepositoraWithdrawal
DeterminingHowManyContractstoTradetoAdjust
PortfolioBeta
UsingFuturesinPassiveEquityPortfolioManagement
UsingFuturesinActiveEquityPortfolioManagement
ModifyingSystematicRisk
ModifyingUnsystematicRisk
ModifyingtheCharacteristicsofanInternationalEquity
Portfolio
TaxablePortfolios
TaxEfficientInvestingStrategies
WaystoDiversifyConcentratedPortfolios
AssetAllocationStrategies

IntegratedAssetAllocation

StrategicAssetAllocation
TacticalAssetAllocation
InsuredAssetAllocation
SelectinganAllocationMethod

11

CHAPTER17
AnswerstoQuestions
1.Passiveportfoliomanagementstrategieshavegrownin
popularity because investors are recognizing that the
stockmarketisfairlyefficientandthatthecostsofan
activelymanagedportfolioaresubstantial.
2.Numerousstudieshaveshownthatthemajorityofportfolio
managers have been unable to match the riskreturn
performance of stock or bond indexes. Following an
indexingportfoliostrategy,theportfoliomanagerbuilds
a portfolio that matches the performance of an index,
therebyreducingthecostsofresearchandtrading.
Inanindexingstrategy,theportfoliomanager'sevalua
tionisbaseduponhowcloselytheportfoliotracksthe
index or "tracking error," rather than a riskreturn
performanceevaluation.
3.

Stockmarketindexportfoliosareprobablymoredifficult
to construct and maintain because securities must
frequently be bought and sold in order to reflect cash
inflows and outflows, company mergers and acquisitions,
etc..

4.Threebasictechniquesexistforconstructingapassive
portfolio:(1)fullreplicationofanindexiswhereall
securities in the index are purchased proportionally to
theirweightintheindex;(2)insamplingtheportfolio
managers purchases only a sample of the stocks in the
benchmark index; and (3) quadratic optimization or
programming techniques utilize computer programs that
analyze historical security information in order to
developaportfoliothatminimizestrackingerror.
5.

Therearetradeoffsbetweenusingthefullreplication
andthesamplingmethod. Fullyreplicatinganindexis
moredifficulttomanageandhashighertradingcommission
costs, when compared to the sampling method. However,
trackingerroroccursfromsampling,whichshouldnotbe
thecaseinthefullreplicationoftheindex.

6.Thereareanumberofactivemanagementstrategiesdis
cussedinthechapterincludingsectorrotation,theuse
of factor models, quantitative screens, and linear
programmingmethods.

12

Followingasectorrotationstrategy,themanagerover
weights certain economic sectors, industries or other
stockattributesinanticipationofanupcomingeconomic
periodortherecognitionthatthesharesareundervalued.
Using a factor model, portfolio managers examine the
sensitivityofstockstovariouseconomicvariables.The
managers then "tilt" the portfolios by trading those
sharesmostsensitivetotheanalyst'seconomicforecast.
Throughtheuseofcomputerdatabasesandquantitative
screens,portfoliomanagersareabletoidentifygroupsof
stocksbaseduponasetofcharacteristics.
Usinglinearprogrammingtechniques,portfoliomanagers
are able to develop portfolios that maximize objectives
whilesatisfyinglinearconstraints.

7.Managersattempttoaddvaluetotheirportfolioby:(1)
timingtheirinvestmentsinthevariousmarketsinlight
of market forecasts and estimated risk premiums; (2)
shiftingfundsbetweenvariousequitysectors,industries,
or investment styles in order to catch the next "hot"
concept; and (3) stockpicking of individual issues (buy
low,sellhigh).
8.Theportfoliomanagercouldemphasizeoroverweight,rela
tive to the benchmark, investments in natural resource
stocks.Theportfoliomanagercouldalsopurchaseoptions
onnaturalresourcestocks.
9.Thejobofanactiveportfoliomanagerisnoteasy.In
order to succeed, the manager should maintain his/her
investmentphilosophy,"don'tpanic."Sincethetransac
tion costs of an actively managed portfolio typically
accountfor1to2percentoftheportfolioassets,the
portfolio must earn 12 percent above the passive
benchmark just to keep even. Therefore, it recommended
thataportfoliomanagerattempttominimizetheamountof
portfoliotradingactivity.Numerousportfolioturnovers
will result in diminishing portfolio profits due to
growingcommissioncosts.
10.

CFAExaminationLevelIII(1992)

10(a).Thefollowingfourfactorsfavoractivemanagement

13

1.Economicdiversity.ThediversityoftheOtunianeconomy
across various sectors may offer the opportunity for
theactiveinvestortoemploytopdownsectorrotation
strategies.
2. High transactions costs. Very high transaction costs
may discourage trading activity by international
investors and lead to inefficiencies that can be
exploitedbyactiveinvestors.
3. Capital restrictions. Restrictions on capital market
flows can lead to market inefficiencies that can be
exploited.
4.Developingeconomyandmarkets.Developingoremerging
markets have inefficiently priced securities and
rapidly growing economies. This allows opportunities
foractivemanagers.
Thefollowingfactorsfavorindexation.
1. High transaction costs will lead to a bias against
activetradingandmoresupportforindexation.
2. Settlement problems. Would discourage active trading
andfavorindexing.
3.Restrictionsoncapitalflows.Thiscanbeviewedasa
factor supporting indexing because it can diminish
the appeal of active trading because it limits
repatriationofprofits.
4. Financial disclosure and accounting standards. Wide
availability of reliable financial information leads
to greater market efficiency and thus supports
indexing.
10(b). Shorttermmarketinefficienciesandlongtermprospects
fortheeconomywouldsupportactivemanagement.
Indexation is supported by high transaction costs,
settlementproblemsandrestrictionsoncapitalflows.
A strong argument can be made for indexing or active
management.
11.

Investment style involves constructing the portfolio in

suchawayastocaptureoneormorecharacteristicsof
equitysecurities.

14

Value stocks are stocks that appear to be underpriced

becausetheirprice/bookorprice/earningsratioislowor
theirdividendyieldishigh,whencomparedtotherestof
themarket.Growthstocks,ontheotherhand,arestocks
thatdemonstrateaboveaverageearningspershareincrease
and usually have aboveaverage ratios of price/book and
price/earnings.
12.

Styleidentificationisimportantforportfoliomanagers
and their clients for the following reasons: (1)
investmentstylecommunicatesinformationtoclientsabout
the manager's focus, area of expertise, and stock
evaluationmethods;(2)determininganportfoliomanager's
styleisusefulformeasuringhis/herperformancerelative
to a benchmark; (3) style identification allows an
investortoproperlydiversifyhis/herportfolio;and(4)
styleinvestingallowscontrolofthetotalportfolioto
be shared between the investment managers and a
knowledgeablesponsorwhohiresinvestmentmanagers.

13.

CFAExaminationLevelIII(1994)
InessencetheEMHmaintainsthattheonlyriskthatis
pricedissystematicriskandthusitwouldbeimpossible
for investors to pick stocks that offer returns that
exceedthatpredictedbytheCAPM.Thefindingthatvalue
stocks outperform growth stocks could be viewed as a
challengetotheEMHbecauseitimpliesthatP/EandP/BV
canbeusedtopredictreturns.AccordingtoEMH(thatis
theCAPM),itisonlybetaorsystematicriskthatcanbe
usedtopredictreturns.HoweverifyouviewP/EandP/BV
as proxies for risk then the EMH is not necessarily
contradicted.

14.

Studies have shown that over the long run, on average,

value stocks offer somewhat higher returns than growth
stocks.Theseempiricalfindingscanbeexplainedby:
(1) The empirical studies have focused on beforetax
returns of value and growth stocks. Value stocks have
higher dividends and lower expected capital gains than
growthstocks.
(2)Valuestockshavehigherriskpremiums,thatis,lower
comfortzoneforinvestors.Specifically,uncertainabout
the future leads investors to perceive value stocks as
moreriskierandlessdesirable.
Therefore,althoughaninvestorshouldprobablyconsider
value stocks as part of any diversified portfolio, they
shouldalsoconsiderotherinvestmentstylesinorderto
properlydiversifyhis/herportfolio.
15

15.

CFAExaminationLevelIII(1995)
AhigherP/Eneednotimplyovervaluationbecause
1.It may simply reflect the fact that earnings are
expected to grow faster and the market is reflecting
thishighergrowthexpectation.
2. Itmayreflectthefactthatthecompaniesoperatein
differentindustries.
3. It may reflect the fact that the industries the
companies operate in are at different stages in the
lifecycleyoungerindustriestendtohavehigherP/E
ratios.
AhigherP/Bneednotimplyovervaluationbecause
1.Itmaybebecauseofoffbalancesheetassetsthatare
relectedinthestockpricebutnotthebookvaluefor
Newsoft.
2.Newsoftmaybeusingitsassetsefficiently.Thiswould
justifyahigherP/B.
3. Capital Corp. may have obsolete assets that would
inflate book value and thus give it a lower P/B
relativetoNewsoft.

16.

One skill that separates a bad valuestock portfolio

managerfromagoodoneisknowingwhentobuyastock.
Buying a stock too early results in poor stock
performancesasthebadordisappointingnewscontinues.
Avaluemanagerwhopickstherighttimetobuyastock
enjoysthebenefitsofgoodnewsaboutthefirmandfroma
risingstockpriceasothersjumponthebandwagonandbuy
thestock.
Oneskillthatseparatesagoodgrowthportfoliomanager
fromabadoneisknowingwhentosell. Thebadgrowth
managerremainsoptimisticaboutthefirmfortoolongor
believesthatanybadnewswillsoonbereplacedbygood
news. Bad growth portfolio managers hold onto their
stocks so long that previously earned returns shrink or
disappear.

17.

Completenessfunds(orcustomizedpassiveportfolios)are
constructed to complement active portfolios that do not
covertheentiremarket.

16

18.

CFAExaminationLevelIII(1986)

18(a). Afuturescontractisanagreementtobuyorsellanasset
at a future date, at a price fixed today. An option on
futures contract gives the buyer the right but not the
obligationtobuyorsellthefuturescontractatafuture
dateatapricefixedtoday.
Essentiallyfutureshavesymmetricalimpactonportfolio
returns. That is a long position in futures increases
exposure to the asset whereas a short position reduces
exposure to the asset. Because an option can expire
without being exercised, they do not have a symmetrical
impactonreturns.
18(b). Buying a put while owning the asset has the effect of
limitingdownsideloss,whilestillmaintainingexposure
to upside gain (protective put). Writing a covered call
limitsupsidegainbutdoesnotlimitdownsideloss.
19.

Hedgeratioistheappropriatenumberoffuturescontracts
thatmustbeboughtorsoldinordertohedgeaposition.
Futurescontractsareusedinordertomaintainthe
desired exposure to stocks (in this case) when the
portfolioexperiencesacashinfloworoutflow.

20.

Equityportfoliomanagementstrategiesareclassifiedas
eitherpassiveoractive.Unliketheimmunizationofbond
portfolios, no middle ground exists between the two
strategies. Some have argued that an active/passive
portfolio management style does exist for equity
portfolios,howevermostpeoplebelievesuchstylesreally
reflectactivemanagementphilosophies.

21.

An after tax efficient frontier is shifted down because

investorshavelowerreturnsafterpayingtaxes.Theshift
leftoccursbecausethetaxcodeallowscapitallossesto
be netted against capital gains, consequently the
variationinreturnsovertimeisreduced.

22.

Iflifeexpectancyislongthenthetradeoffbetweentax
consequences and return potential from investing in a
diversified portfolio may make rebalancing a poorly
diversifiedportfolioappropriate.Iflifeexpectancyis
shortthenthebetterapproachmaybetosimplypassthe
stocktoheirsonasteppedupbasis.

23.

Avaluemanagerwillhavealowercostbasisthanagrowth
managerwhoislikelytopayarelativelyhigherpricein
theexpectationofhighfuturereturns.Thevaluemanager
17

willhavelargercapitalgainstaxes,andthuswillneed
tohavealargerexpectedreturnadvantagetoearnhigher
aftertaxreturnsrelativetothegrowthmanager.
24.

Taxesgiverisetothefollowingcomplications
1. Asset reallocations will trigger capital gains and
thusreducewealth.
2. Periodic rebalancing of the portfolio will also
triggertaxableevents.
3. Markowitzmeanvarianceoptimizationisindifferentto
the investors time horizon. Thus depending on life
expectancy,rebalancingmayormaynotbeappropriate.

25.

Amanagerofanactivelymanagedportfoliomustconsider
thefollowingfactorsbeforeexecutingatrade
1. Securitiessoldatagainwillgeneratecapitalgains
taxesthatwillerodeportfoliowealth.
2. The new security needs to have an expected return
advantagetorecoverthetaxcost.
3. Thesizeoftheexpectedreturnadvantagewilldepend
on the expected length of the holding period and the
costbasis.

26.

Thefivetaxefficientinvestingstrategiesare
1. Buyandhold,sinceunrealizedcapitalgainsarenot
taxed.
2.Uselossharvestingbynettinglossesagainstgains.
3. Use options to convert shortterm capital gains into
longterm capital gains for more favorable tax
treatment.
4. Use taxlot accounting where shares with the highest
costbasisaresoldfirst.
5. Buy growth stocks and focus on capital appreciation
ratherthanincome.

27.

Taxefficientwaystodiversifyaconcentratedportfolio
are
1.Borrowagainstthevalueofshares.
2. Useacollarstrategywhereyoupurchaseaputwitha
strikebelowthecurrentstockpriceandsellacall
withastrikeabovethecurrentstockprice.
3.Usevariableprepaidforwards.
4. Completion funds. Slowly liquidate the portfolio and
investproceedsinadiversifiedportfolio.
5.Charitablestrategies.Donateappreciatedstock.

28.

Anoptioncollar
18

Profit
Stockatexpiration

29.

To convert a shortterm capital gain into a long terms

gain, you can write an atthemoney or outofthemoney
calloption.Thestrikepricebecomesthemaximumselling
price should the stock continue to rise but the option
premium provides some downside protection in case of a
pricedecline.Aslongasthepricedeclineisnotsevere,
thecombinedstockoptionpositionwillallowtheinvestor
to maintain some profits for lonterm capital gains
treatment.

30.Thefourassetallocationstrategiesare:(1)integrated
assetallocationstrategy,whichreliesoncurrentmarket
expectations; (2) strategic asset allocation strategy,
which utilizes longrun projections; (3) tactical asset
allocation strategy, which assumes that investor's
objectives and constraints remain constant over the
planning horizon; and (4) insured asset allocation
strategy,whichpresumeschangesininvestor'sobjectives
andconstraintsasmarketconditionschange.

19

CHAPTER17
AnswerstoProblems

1.$50millionx1.2x1.10=66million
2.
PortfolioS&P500[RiE(Ri)]x
Month(Ri)RiE(Ri)(Rm)RmE(Rm)[RmE(Rm)]

Jan5.0%4.75835.2%5.033323.9500
Feb2.32.54173.03.16678.0488
Mar1.82.04171.61.76673.6071
Apr2.21.95831.91.73333.3943
May0.40.15830.10.06670.0106
Jun0.81.04170.50.66670.6945
Jul0.00.24170.20.03330.0080
Aug1.51.25831.61.43331.8035
Sep0.30.54170.10.26670.1445
Oct3.73.94174.04.166716.4239
Nov2.42.15832.01.83333.9568
Dec0.30.05830.20.03330.0019

Sum2.92.062.0067
E(Ri)=2.9/12=.2417E(Rm)=2.0/12=.1667
Vari=60.3490/12=5.0291Varm=64.7865/12=5.3989
____________
SDi=\/5.0291=2.2426SDm=\/5.3989=2.3236
COVi,m=62.0067/12=5.1672
5.1672
Ri,m==.9916R2=(.9916)2=.9833
(2.2426)(2.3236)
5.1672
Bi==.9571
5.3989
20

alpha=E(Ri)(BixE(Rm))

=.2417(.9571)(.1667)=.0822

WithaR2valueof.9833,onecanconcludethatthe
passiveportfoliodidcloselytracktheS&P500benchmark.
3.

Theannualgeometricmeanfortheequityriskpremiumis
6.7 percent. Trading costs of 1.5 percent is equal to
22.39%oftheequityriskpremium.

4(a). 1,000,000(1.06)n=800,000(1.08)n
ln(1.25)=(n)ln(1.08)(n)ln(1.06)
n=11.93years
4(b). 1,000,000(1.06)n=800,000(1.075)n
ln(1.25)=(n)ln(1.075)(n)ln(1.06)
n=15.87years
4(c).1,000,000(1.06)n=800,000(1.065)n
ln(1.25)=(n)ln(1.065)(n)ln(1.06)
n=47.45years
5.

You could sell a put or but a call. The effective

repurchasepricesareshownbelowforvariousstockprices
StockPrice
$43
$50
$57

SellPut
556=$49
556=$49
576=$51

BuyCall
43+7=$50
45+7=$52
45+7=$52

6.ThevalueoftheS&P500futurescontractisequalto$500
timestheS&P500indexvalue.
$500x1010.50=$505,250
$3million
6(a).x1.05=5.94contracts
$505,250

21

6contracts(rounded)wouldbepurchasedtohedgecash
inflow.
$8million
6(b).x1.05=15.83contracts
$505,250
16contractswouldbesoldtohedgecashoutflow.
Fx$505,250
7(a).1.15=(.95x1.05)+x1.0
$100million
1.15=.9975+.0050525F
.1525=.0050525F
30.18=F(31contractsmustbepurchased)
Fx$505,250
7(b).1.30=(.95x1.05)+x1.0
$100million
1.30=.9975+.0050525F
.3025=.0050525F
59.87=F(60contractsmustbepurchased)
Fx$505,250
7(c)..95=(.95x1.05)+x1.0
$100million
.95=.9975+.0050525F
.0475=.0050525F
9.40=F(10contractsmustbesold)
Fx$505,250
7(d).0=(.95x1.05)+x1.0
$100million
0=.9975+.0050525F
.9975=.0050525F
22

197.43=F(198contractsmustbesold)

8(a).OneS&P500futurescontract=$500x985.37=$493,685

Fx$493,685
8(b).0=(1.0x1.3)+x1.0
$1.5million
0=1.3+.3291F
3.950=F
Inordertomaketheportfoliomarketneutral,itis
necessarytosell4(rounded)futurescontracts.
8(c).Ifthemarketdropby10percent,S&P500goesfrom985.37
to886.83.
i.Infuturesmarket
Sold4S&P500contracts@$500x985.37=$1,970,740
Bought4S&P500contracts@$500x886.83=1,773,660

Profitinfutures$197,080
ii.Unhedgedstockportfolio
A10percentmarketdeclineequalsa13%portfoliodecline
assumingabetaof1.3.
$1,500,000x(.10x1.3)=($195,000)lossinportfolio
value

$1,500,000$195,000=$1,305,000newportfoliovalue
iii.Hedgedportfolio
Profitinfutures=$197,080
Lossinportfoliovalue=($195,000)

Profit$2,080
Aperfectlyhedgedportfolioshouldbemarketneutral,
thatis,noprofitsorlosses.Inthiscase,asmall
profitoccurredduetorounding.
23

8(d).Ifthemarketrisesby10percent,S&P500goesfrom985.37
to1083.91
i.Infuturesmarket
Sold4S&P500contracts@$500x985.37=$1,970,740
Bought4S&P500contracts@$500x1083.91=2,167,820

Lossinfutures($197,080)
ii.Unhedgedstockportfolio
A10percentmarketriseequalsa13%portfoliorise
assumingabetaof1.3.
$1,500,000x(.10x1.3)=$195,000gaininportfolio
value

$1,500,000+$195,000=$1,695,000newportfoliovalue
iii.Hedgedportfolio
Lossinfutures=($197,080)
Gaininportfoliovalue=($195,000)

Loss($2,080)
Aperfectlyhedgedportfolioshouldbemarketneutral,
thatis,noprofitsorlosses.Inthiscase,asmall
lossoccurredduetorounding.
9(a).OneS&P500futurescontract=$500x1051.73=$525,865

Fx$525,865
9(b).0=(1.0x1.1)+x1.0
$2.3million
0=1.1+.2286F
4.81=F
Inordertomaketheportfoliomarketneutral,itis
necessarytosell5(rounded)futurescontracts.

24

9(c).i.Infuturesmarket
Ifthemarketdropby10percent,S&P500goesfrom
1051.73to946.56
Sold5S&P500contracts@$500x1051.73=$2,629,325
Bought5S&P500contracts@$500x946.56=2,366,400

Profitinfutures$262,925
ii.Unhedgedstockportfolio
A13%portfoliodeclineisequivalentto$299,000lossin
portfoliovalue($2,300,000x.13=$299,000)

$2,300,000$299,000=$2,001,000newportfoliovalue
iii.Hedgedportfolio
Profitinfutures=$262,925
Lossinportfoliovalue=($299,000)

Loss($36,075)
Becauseofunsystematicriskthestockportfoliodeclined
by13percent,ratherthanthe11percentwhichwas
coveredbythehedge(1.1betax.10marketdecline).
9(d).i.Infuturesmarket
Ifthemarketincreasesby10percent,S&P500goesfrom
1051.73to1156.90
Sold5S&P500contracts@$500x1051.73=$2,629,325
Bought5S&P500contracts@$500x1156.90=$2,892,250

Lossinfutures($262,925)
ii.Unhedgedstockportfolio
A15%portfolioincreaseisequivalentto$345,000
increaseinportfoliovalue($2,300,000x.15=$345,000)

$2,300,000+$345,000=$2,645,000newportfoliovalue

25

iii.Hedgedportfolio
Lossinfutures=($262,925)
Gaininportfoliovalue=345,000

Gain$82,075
Becauseofunsystematicriskthestockportfolioincreased
by15percent,ratherthanjustthe11percentwhichwas
coveredbythehedge(1.1betax.10marketdecline).
10.

CFAExaminationLevelIII(1999)
Thenumberoffuturescontractsrequiredis:
N=(valueoftheportfolio/valueoftheindexfutures)
xbetaoftheportfolio
=[$15,000,000/(1,000x250)]x0.88
=[$15,000,000/250,000]x0.88
=60x0.88
=52.8contracts
Selling(goingshort)52or53contractswillhedge
$15,000,000ofequityexposure.

11.

CFAExaminationLevelIII(2000)

11(a).Style=BM
Theperformanceoftherepresentativestyleindexcanbe
calculatedbysubtractingthebroadmarketsreturn(in
thiscasetheS&P500index,M)fromthespecificstyle
indexreturn(inthiscasetheRussell1000Valueindex,
B).Thisprovidesamoreaccuratepictureofhowthe
style(value)performedversusthebroadmarket,andany
varianceexplainshowavalueorientedportfoliowould
differfromthebroadmarket.
11(b)StockSelection=PB
Theperformanceattributabletostockselectionis
calculatedbysubtractingthebenchmarkindexreturn(in
thiscasetheRussell1000Valueindex,B)fromthe
actualportfolioreturn(P).Thiscalculationprovides
informationonactivestockselectionwithinthe
portfolio,becausetheportfolioisbeingcomparedtothe
specificstylebenchmarkandnottothebroadmarket.

26

Chapter17
AnswerstoSpreadsheetExercises
1.About12years
Single Stock
Value
Return
Year

1000
0.08

Value
1
1080
2
1166.4
3 1259.71
4 1360.49
5 1469.33
6 1586.87
7 1713.82
8 1850.93
9
1999
10 2158.92
11 2331.64
12 2518.17
13 2719.62
14 2937.19

Diversified Stock
Value
800
Return
0.1
Year

Value
1
880
2
968
3
1064.8
4
1171.28
5
1288.41
6
1417.25
7
1558.97
8
1714.87
9
1886.36
10
2074.99
11
2282.49
12
2510.74
13
2761.82
14
3038

27

2.About12years
Single Stock
Value
Return
Year

CG Tax Diversified Stock

2000000
0.2Value
1600000
0.06
Return
0.08

Value
1 2120000
2 2247200
3 2382032
4 2524954
5 2676451
6 2837038
7 3007261
8 3187696
9 3378958
10 3581695
11 3796597
12 4024393
13 4265857
14 4521808

Year

Value
1
1728000
2
1866240
3
2015539
4
2176782
5
2350925
6
2538999
7
2742119
8
2961488
9
3198407
10
3454280
11 3730622
12
4029072
13
4351398
14
4699510

28

3.About16years
Single Stock
Value
Return
Year

CG Tax Diversified Stock

2000000
0.2Value
1600000
0.06
Return
0.075

Value
1 2120000
2 2247200
3 2382032
4 2524954
5 2676451
6 2837038
7 3007261
8 3187696
9 3378958
10 3581695
11 3796597
12 4024393
13 4265857
14 4521808
15 4793116
16 5080703
17 5385546

Year

Value
1
1720000
2
1849000
3
1987675
4
2136751
5
2297007
6
2469282
7
2654479
8
2853565
9
3067582
10
3297651
11 3544974
12
3810847
13
4096661
14
4403910
15
4734204
16
5089269
17
5470964

29

4.About48years
Single Stock
Value
Return
Year

CG Tax Diversified Stock

2000000
0.2Value
1600000
0.06
Return
0.065

Value
1 2120000
2 2247200
3 2382032
4 2524954
5 2676451
6 2837038
7 3007261
8 3187696
9 3378958
10 3581695
11 3796597
12 4024393
13 4265857
14 4521808
15 4793116
16 5080703
17 5385546
18 5708678
19 6051199
20 6414271
21 6799127
22 7207075
23 7639499
24 8097869
25 8583741
26 9098766
27 9644692
28 10223373
29 10836776
30 11486982
31 12176201
32 12906773
33 13681180
34 14502051
35 15372174
36 16294504
37 17272174
38 18308505
39 19407015
40 20571436

Year

Value
1
1704000
2
1814760
3
1932719
4
2058346
5
2192139
6
2334628
7
2486378
8
2647993
9
2820113
10
3003420
11
3198642
12
3406554
13
3627980
14
3863799
15
4114946
16
4382417
17
4667274
18
4970647
19
5293739
20
5637832
21
6004291
22
6394570
23
6810217
24
7252881
25
7724319
26
8226399
27
8761115
28
9330588
29
9937076
30 10582986
31 11270880
32 12003487
33 12783714
34 13614655
35 14499608
36 15442082
37 16445818
38 17514796
39 18653258
40 19865719
30

41
42
43
44
45
46
47
48
49
50
51
52
53
54

21805722
23114065
24500909
25970964
27529222
29180975
30931833
32787743
34755008
36840309
39050727
41393771
43877397
46510041

41
42
43
44
45
46
47
48
49
50
51
52
53
54

21156991
22532195
23996788
25556579
27217757
28986911
30871060
32877679
35014729
37290686
39714580
42296028
45045270
47973213

5.
Single Stock
Value
cost
Return 1 to 2
Return > 2
Year

CG Tax Diversified Stock

800000
0.2Value
660000
100000
-0.05
Return
0.06
0.05

Value
1 760000
2 722000
3 758100
4 796005
5 835805.3
6 877595.5
7 921475.3
8 967549.1
9 1015927
10 1066723

Year

Value
1
699600
2
741576
3 786070.6
4 833234.8
5 883228.9
6 936222.6
7
992396
8
1051940
9
1115056
10
1181959

31

6.
Single Stock
Value
cost
Return 1 to 4
Return > 4
Year

CG Tax Diversified Stock

1200000
0.2Value
960000
0
0.1
Return
0.08
0.06

Value
1 1320000
2 1452000
3 1597200
4 1756920
5 1862335
6 1974075
7 2092520
8 2218071
9 2351155
10 2492225
11 2641758
12 2800264
13 2968279
14 3146376
15 3335159
16 3535268
17 3747384
18 3972227
19 4210561
20 4463195
21 4730986
22 5014846
23 5315736
24 5634680
25 5972761

Year

Value
1
1036800
2
1119744
3
1209324
4
1306069
5
1410555
6
1523399
7
1645271
8
1776893
9
1919044
10
2072568
11 2238373
12
2417443
13
2610839
14
2819706
15
3045282
16
3288905
17
3552017
18
3836179
19
4143073
20
4474519
21
4832480
22
5219079
23
5636605
24
6087534
25
6574536

7.StudentExercise.

32