Investment Advisor Essay

8745 WordsAug 9, 201235 Pages
EXMN 672 – Investment and Portfolio Analysis Final Take-Home Exam July 12, 2009 [pic] Instructor: Edward Goodfellow Learner: Cameron Morrell Learner #: 314534 The Scenario On April 18, 2009 you get a call from your cousin Dr. Nussbaum. Your cousin’s husband died after falling out of a tree. On July 7th, 2009 Dr. Nussbaum will receive a life insurance settlement of $1,000,000. Dr. Nussbaum has heard you were completing your MBA at Royal Roads University. She would like you to provide some guidance on how she should manage the proceeds from the insurance settlement. She has provided you with the following details: Amount: $1,000,000 Age: 53 Status: Widow Children: Three children (ages 30, 27, 25) independently living away from home Objective: Determine a process to manage the $1,000,000 portfolio that may achieve a compounded average annual return of 10% with the highest probability, over a ten-year time period. Compounded this would mean that $1,000,000 would be worth $2,600,000 at the end of ten years. (The 10% requirement is just a benchmark not an absolute requirement.) Other: Dr. Nussbaum has significant other assets and requires neither the funds nor any income from the portfolio. Portfolio Options: A) Portfolio of 20 to 50 stocks or bonds. B) Portfolio of several (1 to 12) active mutual funds or the use of several professional investment managers. C) Portfolio of several (5 to 12) index and asset class funds. Introduction: Modern Portfolio Theory dictates that the only way to get high returns from investments is to take on above average levels of risk (additional levels of risk) . The inherent danger of this philosophy is that high risk-takers will also be

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