I am going to "give you" $200,000 to invest, with the objective of growing it to $271,500 in 5 years so that you can take your $71,500 and use it as a down payment towards buying a house. However, the $200,000 is not "free" - you must pay me a fee, which I normally set equal to the yield-to-maturity on the 5-year Treasury scheduled to mature in 2025. But! Because of the stock market volatility over the last few weeks that yield has fallen to 0.56% (last Spring, it was 2.42% !!), which I cannot accept. Instead, I will charge you as if the 5-year yield-to-maturity is 1%.

Remember that the ytm on a bond is the average annual rate of return you can expect to earn over the life of the bond, if you hold it to maturity (and coupon reinvesting is done properly).

Round all %'s to xx.yyy% or .xxyyy (i.e., 3 decimals)

PART 1

a) Ignoring the fee for the moment, what is the monthly rate of return (compounded) that you must earn to achieve the portfolio objective if you contribute no additional money to the portfolio over the next 5 years?

b) Again ignoring the fee for the moment, what monthly rate of return must you earn on the portfolio if you can also save $300 per month towards the $271,500 objective?

c) How much $$$ is my fee, if the rate is applied (according to the definition of the ytm) to the initial $200,000 I "give" to you?

d) Now, including the amount of the fee that you will pay me from the portfolio's "liquidation proceeds" at the end of the 5th year (so that you pay me and still have $271,500 left over), what monthly rate of return must you earn on the portfolio if you can save $300 per month towards your new (revised with fee) objective?

e) Annualize the rate in (d) under both assumptions.

PART 2

f) Portfolio construction ... A template will be provided to help you organize this information: Select 5 assets - either stocks or mutual funds. Provide a rationale and/or analysis for why you selected each asset.

One of the 5 assets must be an equity mutual fund, one must be a bond mutual fund, and 2 of the other 3 must be individual company stocks. For these purposes, an ETF counts as a fund, since that's what the "F" in ETF stands for!

You can allocate the $200,000 among the 5 assets any way you wish, including taking short positions, but you will not be able to make any adjustments to your portfolio once it is formed.

To select a stock, the company must have market capitalization of at least $200 million; for funds, it must have $200 million under management.

Mutual funds must be open to new, individual investors, and your allocation to a fund must conform to any initial investment minimums it may have. It should NOT be a private retirement fund, or an institutional or retirement plan class of a fund.

Treasury bonds of any kind and money-market mutual funds are ineligible for selection.

g) Allocate the $200,000 across these 5 assets, and purchase shares using the prices or NAVs as of March 17, 2020. Tell me how many shares of each you purchased, and since you cannot buy partial shares of individual company stocks, keep track of any stray cash (difference between amount allocated and amount invested). Do not forget to deduct front-end-load fees from your mutual fund investments, if applicable. If you fund(s) have a load, break that out as a separate line item (see row 12 in template), which essentially makes it an asset with 0% return for portfolio return calculation purposes later.

h) Calculate the weight of each asset in the portfolio, as well as the equity/bond allocation percentages.

i) For the funds you chose, provide or attach documentation (hand it to me) that shows: - the assets under management - the size and style category for each fund - What is the sector or industry breakdown of each equity fund's assets? Give me at least the top 5 sectors/industries, but include the industries your individual company stocks are in if those are not in a fund's top 5. - Verification that the fund is open to new investors.

j) Assign your individual company stocks to their respective sector or industry group. You are free to use whichever definition set of "sector" or "industry" that you choose, as long as you provide documentation of that source and can use it to categorize the individual stocks as well as the assets of the equity fund(s).

k) Calculate the industry or sector exposure (the sector-by-sector weights) of your portfolio, up to the 5 largest industry or sector allocations. This will generally exclude your bond fund unless it is a sector-based corporate bond fund.

*** Provide any source material or spreadsheets that illustrate the calculations you did so that it is easy for me to verify that the sector/industry allocations are correct. If you give me only the numbers without source material and calculations, it will not count. ***