Long-term Asset Allocation Assignment Help
1.Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle, and has no children. He has interest in a private company for $90 million and has decided that a medical research foundation will receive half the proceeds now and will be the primary beneficiary of his estate upon his death. Mr. Franklin is committed to the foundation’s well-being because he believes strongly that, through it, a cure will be found for the disease that killed his wife. He now realizes that an appropriate investment policy and asset allocations are required if his goals are to be met through investment of his considerable assets. Currently, the following assets are available for use in building an appropriate portfolio for him:
$45.0 million cash (from sale of the private company interest,
net of a $45 million gift to the foundation)
$10.0 million stocks and bonds ($5 million each)
$ 9.0 million warehouse property (now fully leased)
$ 1.0 million value of his residence
$65.0 million total available assets
a. Formulate and justify an investment policy statement setting forth the appropriate guidelines within which future investment actions should take place. Your policy statement should encompass all relevant objective and constraint considerations.
b. Recommend and justify a long-term asset allocation that is consistent with the investment policy statement you created in Part a. Briefly explain the key assumptions you made in generating your allocation.
2.You invest $27,000 in a corporate bond selling for $900 per $1,000 par value. Over the coming year, the bond will pay interest of $75 per $1,000 of par value. The price of the bond at year’s end will depend on the level of interest rates that will prevail at that time. You construct the following scenario analysis:
Your alternative investment is a T-bill that yields a sure rate of return of 5%. Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment. What is the expected end-of-year dollar value of your investment?
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3.The Goddard School is considering investing part of its endowment in private equity. The specific investment opportunity requires an investment of $100,000 now and is expected to generate a single cash flow of $125,000 in one year. What is the IRR on this investment?
4.a)What is meant by return on investment?
b)Assume the real rate of return in the economy is 2.5%, expected rate of inflation is 4%, and the risk premium is 5.9%, what is the risk-free rate and your required return?
c)Walgreen’s stock went from $25 to $28 last year. Walgreen’s paid a 50 cent dividend. What is your holding period return (HPR)?
d)ssume you invest $5000 today in an investment that promises to return $9000 in exactly 10 years. If your minimum required return is 9%, would you recommend this investment?
e)NStar is currently trading at $28 per share. The company pays a quarterly dividend of 28 cents per share. What is the dividend yield?
5.i)As you are a businessman, you decide to invest $500 for ten years to earn an annual interest rate of 4.5%. What will be the future value of this investment if :
a.Investment compounded quarterly.
b.Investment compounded monthly
ii)Assume that you have 6,000$ and you want to deposit this amount, in a saving account that earns 4.5% per year, for next nine years ,How much money will you accumulate by the end of year 9?
iii)What is the lump sum equivalent of receiving $9,500 per year for the coming 32 years if the interest rate is 4.5%?
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