Spectre, Inc is a large international multi-conglomerate, headed out by CEO Ernst Blofeld. The company was faulted with a leak in their chemical plant 2 years ago and was obligated to pay for the ongoing expenses of 28% of their workforce to supplement earnings and medical care. In order to pay for these ongoing expenses, the company formed a fund.

After using Citadel LLC as the manager of the fund since inception, Mr. Blodfeld has chosen you to take over the funds management. In doing so he provides you some background on Spectre, Inc. The following is some highlights of that information:

• Evil Corp has annual sales of $34.5 bn
• Our current payroll has been at $3.25 bn and has grown with inflation
• Net Income is at $12.1 bn with a 10.5% 5 yr CAGR
• The average age of the people affected by the leak are 65
• The average age of our remaining workforce is 32
• The liabilities for the accident have a present value of $1.5 bn while we have allocated $2.25 bn
• We applied a 8.9% discount rate to the liabilities
• In the past five years, Citadel LLC has generated a return of 9.1% for us

Blofled specifies that for the next year they need to generate $165 mm to meet expected expenses. However in the allocation process they would like to maintain 15% for cash and alternatives. Their capital gains tax rate is 22%.

Formulate and justify investment policy objectives for Spectre, Inc in the following three areas and show all work:

1. Return objective

1. Risk tolerance

1. Time horizon