Ef Background: You are acting as a consultant to an individual who is 45 years old,...

  
 

Transcribed Image Text:

Ef Background: You are acting as a consultant to an individual who is 45 years old, in good health, and has plans to retire in 15 years. Your client is a manager at the local office of a large multinational corporation. Her salary and incentive compensation are currently $225,000 per year. Although she and her family live well, she has been modest in her expenditures and managed to accumulate a portfolio valued at $1 million during her 12 years at the firm. Her current salary affords her an opportunity to continue adding to her portfolio, however, she plans to direct her disposable funds to a vacation home near Hilton Head, SC rather than continuing to accumulate funds in her portfolio. This will allow her to pay off the mortgage on the home at Hilton Head and be debt-free by the time she retires. She is the primary source of funds for her family and her children will be finished with college and established as independent adults at the time of her retirement. She needs her current portfolio to grow in value over the next 15 years such that she has at least $2 million at that time to generate income for her future. Assignment: Your client does not have the time to analyze individual companies for stock investments and prefers mutual funds. She is looking at 10 mutual funds for consideration and has plans to place $100,000 in each of these 10. You will analyze the 10 funds that your client is considering and prepare a report for her consideration. Your report should include the following: a W I El Paragraph FS Styles 2 3 4 5 Assignment: Your client does not have the time to analyze individual companies for stock investments and prefers mutual funds. She is looking at 10 mutual funds for consideration and has plans to place $100,000 in each of these 10. You will analyze the 10 funds that your client is considering and prepare a report for her consideration. Your report should include the following: 1. A description of each of the 10 mutual funds to include, investment objective, inception date, minimum investment, fund family, fund manager(s), how long the manager(s) has been in place, annual turnover of the fund, fees (front, back, management fee, 12b-1). Explain what each of these terms means in simple terms. (5 points) 2. Descriptive statistics for each of the 10 mutual funds to include, average return over the past -10 years, standard deviation of returns (population), correlation among the 10 funds over the 10 year period, covariance of the funds over the 10 year period. Explain what each of these terms I means in simple terms. (10 points) 3. Analysis of the naïve portfolio with 1/10th invested in each of the 10 funds. This analysis should include return, variance, and standard deviation of this equally-weighted portfolio. Calculate the Sharpe ratio for this portfolio assuming a risk-free rate of three percent. Does this portfolio perform better than the individual funds? If yes, why? If no, why not? Explain what each of these terms means in simple terms. (10 points) a If 4. Determination of the optimized portfolio with the return, variance, standard deviation and Sharpe ratio for this portfolio. Explain the difference between the Sharpe ratio you find in the optimized portfolio relative to the equally-weighted portfolio in part three above. Does this portfolio perform better than the individual funds? If yes, why? If no, why not? Explain what each of these terms means in simple terms. (10 points) 5. Determination of the complete portfolio (Risky is based on the 10 mutual funds and Risk-free is based on an allocation to the security yielding three percent used in part three above). How will you determine the level of risk aversion for this client given the information presented in the Background section above? Explain what each of these terms means in simple terms. (10 points) 6. Concluding recommendation with allocations to the 10 mutual funds and to cash with considerations for potential risks to your suggested allocation. Explain what each of these terms means in simple terms. (5 points) a What You'll Turn In Ef Background: You are acting as a consultant to an individual who is 45 years old, in good health, and has plans to retire in 15 years. Your client is a manager at the local office of a large multinational corporation. Her salary and incentive compensation are currently $225,000 per year. Although she and her family live well, she has been modest in her expenditures and managed to accumulate a portfolio valued at $1 million during her 12 years at the firm. Her current salary affords her an opportunity to continue adding to her portfolio, however, she plans to direct her disposable funds to a vacation home near Hilton Head, SC rather than continuing to accumulate funds in her portfolio. This will allow her to pay off the mortgage on the home at Hilton Head and be debt-free by the time she retires. She is the primary source of funds for her family and her children will be finished with college and established as independent adults at the time of her retirement. She needs her current portfolio to grow in value over the next 15 years such that she has at least $2 million at that time to generate income for her future. Assignment: Your client does not have the time to analyze individual companies for stock investments and prefers mutual funds. She is looking at 10 mutual funds for consideration and has plans to place $100,000 in each of these 10. You will analyze the 10 funds that your client is considering and prepare a report for her consideration. Your report should include the following: a W I El Paragraph FS Styles 2 3 4 5 Assignment: Your client does not have the time to analyze individual companies for stock investments and prefers mutual funds. She is looking at 10 mutual funds for consideration and has plans to place $100,000 in each of these 10. You will analyze the 10 funds that your client is considering and prepare a report for her consideration. Your report should include the following: 1. A description of each of the 10 mutual funds to include, investment objective, inception date, minimum investment, fund family, fund manager(s), how long the manager(s) has been in place, annual turnover of the fund, fees (front, back, management fee, 12b-1). Explain what each of these terms means in simple terms. (5 points) 2. Descriptive statistics for each of the 10 mutual funds to include, average return over the past -10 years, standard deviation of returns (population), correlation among the 10 funds over the 10 year period, covariance of the funds over the 10 year period. Explain what each of these terms I means in simple terms. (10 points) 3. Analysis of the naïve portfolio with 1/10th invested in each of the 10 funds. This analysis should include return, variance, and standard deviation of this equally-weighted portfolio. Calculate the Sharpe ratio for this portfolio assuming a risk-free rate of three percent. Does this portfolio perform better than the individual funds? If yes, why? If no, why not? Explain what each of these terms means in simple terms. (10 points) a If 4. Determination of the optimized portfolio with the return, variance, standard deviation and Sharpe ratio for this portfolio. Explain the difference between the Sharpe ratio you find in the optimized portfolio relative to the equally-weighted portfolio in part three above. Does this portfolio perform better than the individual funds? If yes, why? If no, why not? Explain what each of these terms means in simple terms. (10 points) 5. Determination of the complete portfolio (Risky is based on the 10 mutual funds and Risk-free is based on an allocation to the security yielding three percent used in part three above). How will you determine the level of risk aversion for this client given the information presented in the Background section above? Explain what each of these terms means in simple terms. (10 points) 6. Concluding recommendation with allocations to the 10 mutual funds and to cash with considerations for potential risks to your suggested allocation. Explain what each of these terms means in simple terms. (5 points) a What You'll Turn In

Answer rating: 100% (QA)

INTRODUCTION Your client is a 45yearold manager at a large multinational corporation who is looking to retire in 15 years She has been modest in her expenditures and has managed to accumulate a portfo... View the full answer