Fact Pattern: Assume you are working as an associate analyst at an investment management firm. One of your primary functions is to prepare summaries of portfolio performance for the firm's clients. This performance analysis includes not only returns achieved but comparisons with the market and measures of risk exposure. One of the portfolios you are asked to analyze is called the ABC Portfolio. Based on your research, the following information was collected for the prior six (6) years: Further analysis indicated that the share price of the ABC Portfolio was $20.00 at the outset of the measurement period (i.e., the beginning of Year 1). Required: Based on the fact pattern above, answer the following questions: 1. Define a time-weighted rate of return and a dollar-weighted rate of return in a portfolio performance context. Compare and contrast the two measures of performance. 2. What was ABC Portfolio's time-weighted compound annual rate of return over the six years provided? What was the comparable rate of return on the market, as measured by the S&P 500, over that same period of time? a. How did the return on the portfolio compare to the market return over the period analyzed? b. Did the portfolio bear more or less systematic risk than the market? Explain. c. Were the returns earned by the portfolio more or less variable than the market returns? Explain. d. Based on your answers above, can you conclude that ABC's Portfolio was more or less risky than the overall market? Support your answer. 3. What was ABC Portfolio's dollar- or money-weighted compound annual rate of return over the six years provided? Cash Ending Dividends Share S&P500 Year per Share Price Return 1 $0.60 $20.50 12.0% 2 2.00 22.00 17.0% 3 1.00 21.00 2.0% 4 2.00 22.00 -3.0% 5 2.50 25.00 14.0% 6 2.00 28.00 9.0% 4. If the ABC Portfolio had 500 shares outstanding at the beginning of the first year of the analysis period, how much would the entire Portfolio be worth at the end of the six-year period? For purposes of this analysis, assume that all dividends were reinvested in the Portfolio in the year received at year-end values. What was the Portfolio's compound annual growth rate over the six years analyzed? 5. Why are the rates of return determined in Questions #2, #3, and #4 above different? Explain. 6. Using the original data given in the case study (including the beginning balance of 500 shares worth $20.00 each), now assume that ABC adds an additional $2,000 at the beginning of each year to the portfolio. What would the value of the portfolio be at the end of the six years using both a time-weighted and a dollar-weighted calculation method? Assume all dividends were reinvested in the Portfolio in the year received at year-end values. How do these return metrics compare to the returns calculated above? Explain using Excel and Excel formulas.