Iv liquidity ips x has the appropriate language

Info icon This preview shows pages 4–6. Sign up to view the full content.

View Full Document Right Arrow Icon
iv. Liquidity: IPS X has the appropriate language. Because of the early retirement feature starting next month and the age of the work force (which indicates an increasing number of retirees in the near future), the Plan needs a moderate level of liquidity in order to fund monthly benefit payments. b. The current portfolio is the most appropriate choice for the pension plan’s asset allocation. The current portfolio offers: i. An expected return that exceeds the Plan’s return requirement; ii. An expected standard deviation that only slightly exceeds the Plan’s target; and, iii. A level of liquidity that should be sufficient for future needs. The higher expected return will ameliorate the Plan’s under-funded status somewhat, and the change in the fund’s risk profile will be minimal. The portfolio has significant allocations to U.K. bonds (42 percent) and large-cap equities (13 percent) in addition to cash (5 percent). The availability of these highly liquid assets should be sufficient to fund monthly benefit payments when the early retirement feature takes effect next month, particularly in view of the stable income flows from these investments. The Graham portfolio offers: i. An expected return that is slightly below the Plan’s requirement; ii. An expected standard deviation that is substantially below the Plan’s target; and, iii. A level of liquidity that should be more than sufficient for future needs. Given the Plan’s under-funded status, the portfolio’s level of risk is unacceptable. 28-4
Image of page 4

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter 28 - Investment Policy and the Framework of the CFA Institute The Michael portfolio offers: i. An expected return that is substantially above the Plan’s requirement; ii. An expected standard deviation that far exceeds the Plan’s target; and iii. A level of liquidity that should be sufficient for future needs. Given the Plan’s under-funded status, the portfolio’s level of risk is unacceptable. 2. c.Liquidity 3. b. Organizing the management process itself. 4. a.An approach to asset allocation that GSS could use is the one detailed in the chapter. It consists of the following steps: 1. Specify asset classes to be included in the portfolio. The major classes usually considered are the following: Money market instruments (usually called cash) Fixed income securities (usually called bonds) Stocks Real estate Precious metals Other 2. Specify capital market expectations. This step consists of using both historical data and economic analysis to determine your expectations of future rates of return over the relevant holding period on the assets to be considered for inclusion in the portfolio. 3. Derive the efficient portfolio frontier. This step consists of finding portfolios that achieve the maximum expected return for any given degree of risk.
Image of page 5
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern