Sep 18, 2017

MR. FRANKLIN IS 70 YEARS OF AGE, IS IN EXCELLENT HEALTH, PURSUES A SIMPLE BUT ACTIVE LIFESTYLE,…

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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 pri- mary beneficiary of his estate upon his death. Mr. Franklin is committed to the founda- tion’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 as- set allocations are required if his goals are to be met through investment of his consider- able 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 state- ment should encompass all relevant objective and constraint considerations.

 

b. Recommend and justify a long-term asset allocation that is consistent with the invest- ment policy statement you created in Part a. Briefly explain the key assumptions you made in generating your allocation.


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