BIM_Eq_2003 - 15.407 J. Wang Finance Theory December 2,...

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15.407 Finance Theory J. Wang December 2, 2003 Bemus Investment Management (BIM) Bemus Investment Management has landed yet another client, Lorenzo Partners, one of the largest architectural and engineering design firms in upstate New York. You have been assigned to take over management of a portfolio of equities, part of this firm's pension plan. The current composition of this portfolio is given in Exhibit 1. This is a defined contribution plan: the company contributes to the plan on behalf of its employees. 1 Each employee "owns" part of the fund. The employee's balance grows as additional contributions are made and investment returns accumulate. 2 The employees’ final balance at retirement is used to fund his or her retirement income. For example, the balance might be used to purchase an annuity guaranteeing a stable monthly income for the rest of the retired employee's life. Exhibit 2 shows the distribution of normal (age 65) retirement dates for the current participants in the equity portfolio. 3 The uneven distribution of retirement dates results from fluctuations in Lorenzo Partners' past growth and hiring, and from random variations in the age of employees when they were hired. Note, however, that the majority of employees will retire after 2021. The total number of employees is 156 and the average current balance per employee is about $144,000. Your client is Gustav Herkimer, Lorenzo Partners' CFO. He exhorts you to "invest for the long run," but also asks for quarterly reports tracking portfolio performance relative to the Standard and Poors 500 Index (S&P 500). Mr. Herkimer also asks for a brief report summarizing BIM's investment strategy and the initial composition of the equity portfolio. Please submit this report by Tuesday, November 25. Attach a 1 The employees can contribute additional amounts by deductions from their paychecks. 2
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This note was uploaded on 01/19/2011 for the course 15 15.407 taught by Professor Wang during the Fall '03 term at MIT.

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BIM_Eq_2003 - 15.407 J. Wang Finance Theory December 2,...

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