Unit 1: Buildup of investment portfolio of $1,000,000.00

Purchase (broad index) ETFs, bond, stock, commodity, and currencies to construct a portfolio that is consistent with the

following asset allocation guideline (at market value). The passive and active portfolios should be established with

approximately the same holdings and weights (i.e., same trades and same returns during the first Unit). The passive

portfolio should not need to be adjusted during the remainder of the term.
• Stock: Trade at least ten individual stocks, of which at least two are from a foreign exchange and two

additional securities are ADRS trading on a U.S. exchange.
• Fixed income: use a combination of Treasury Bonds and fixed income ETFs. Please limit the amount invested in

only one ETF or ETN to $100,000.
• Commodities: can be purchased in the cash market (corn, wheat, gold, silver, and major currencies) or using an

ETF;
• Real estate: exposure must be obtained using an ETF on a broad real estate index.

Asset Class Target Minimum Maximum
U.S. Large Cap. Stocks 40% 30% 50%
U.S. Small Cap. Stocks 20% 10% 30%
Non-U.S. Stocks 10% 0% 20%
Fixed Income 20% 15% 25%
Real Estate 3% 0% 10%
Commodities including currencies 3% 0% 10%
Cash and equivalents 4% 0% 10%

Unit 2: Stops, shorting and buying on margin

• For the active portfolio, establish at least three stop loss orders for the ETFs in the existing portfolio

(e.g., set the stop price at about 10% or more below the current price).
• Establish a margin account by borrowing funds

Unit 3: Rebalancing and buying mutual funds, levered ETF and an ultra-short ETF

• Replace (i.e., sell) 20% of the large cap ETFs by purchasing an index mutual fund, and sell 20% of the small cap

ETF by buying an actively managed small cap mutual fund(s).
• Increase the systematic risk of U.S. securities by selling regular broad index ETF and purchasing levered ETF.
• Reduce exposure to international equities by purchasing an Ultra-Short ETF like those from ProShares (e.g.,

Ultrashort MSCI Japan with ticker of EWV).

Unit 4: Develop an asset allocation with considerations of following factors

• Given where we are in the business cycle, would you be under or overweight bonds?
• What will be your allocation to domestic equity, domestic small cap equities, and international developed and

emerging markets equities?
• Will emerging markets stocks exhibit more correlation with the US market this year?
• Invest for a diversified portfolio, instead of a series of trades with no rhyme or reason.

Unit 5: Based on expectations of interest rates, establish positions in bond with considerations of following factors

• What impact will interest rate cuts have on the economy, and the broader markets?
• What is your view on inflation? Are there any plays to be made in interest rate futures, TIPS, etc.?
• What investments are benefiting from low or high inflation
• What sectors would benefit from lower interest rates? Which would suffer from higher interest rates?

Unit 6: Midterm Exam. No required trades, but can trade to rebalance.

Unit 7: Continue Bond Section in Unit 5 with considerations of the following factors:

• What is your best estimate on the future course of interest rate spreads-widening or narrowing?
• Would you be favoring long duration or short duration bonds right now?
• Do you forecast higher default rates by corporate issuers?

Unit 8: Stock Valuation.
• How will you identify undervalued stocks?
• What financial ratios will you use to screen stocks?
• Consider using relative valuation and discounted cash flow valuation models.
• Are you looking for growth oriented companies with superior earnings growth?
• How will emerging legislation (financial markets reform, health care reform, government fiscal stimulus

programs) affect your view of market, sector, security performance going forward?

Unit 9: Macro Economy and Stock Performance
• What projections do you have for the world economy?
• Will the current commodity cycle continue its rate of growth?
• What is your view on the dollar?
• What factors could see a long position begin to rally relative to other currencies?
• Do you have an overall investment theme?