Investment Theory

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A. Javier’s current 401(k) plan’s asset allocation does not satisfy his desire for his overall allocation. Javier has a larger percentage of his portfolio invested in Bonds. His desired overall allocation is 35% bonds and 65% stocks.

In August 2006 with David Swensen as head of the Yale Investments Office, the Yale endowment has grown to 18 billion dollars. This was achieved with the help of focusing on less efficient markets such as private equity, real assets, and absolute return investments. However, with such a large endowment, the office is continually faced with challenges, which will be discussed in this case.

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Lastly, I have become increasingly involved with Yale Undergraduate Diversified Investments, which is a student financial education club that strives to provide all members with a thorough understanding of investment analysis and valuation. Through my participation, I have attended a weekly lecture series, which has provided me insight into a wide range of financial topics, including the production and development goals of corporations.

For our portfolio mix, we invested roughly 81% on stocks, 15% on Bonds and 4% on Cash. Our target for the portfolio allocation is that we invested 90% on stocks and 10% on Cash for short term investments. Our goal was investing 80% of our cash for stock market because we know that will get higher return form stock market instead of bonds which is safer to own but bring lower return, and we are young, so we love to take more risk. We also wanted to keep 20% of our money in cash which available for short-term investment. According to the requirements, we ended up spent around 60% on domestic market stock, 10% on international stock market, 10% for short-term stock, 15% on bonds and the rest is in

We assumed that our clients are a married couple, who are 55 years old, and based on that we calculated their total income, costs, as well as the expected return of the portfolio based on their retirement demography. According to the US Census Bureau, Americans now have an average retirement age of 62.9, and an average death age of 78.7. Thus, our clients have to work for 7.9 years before they retire, and they have 15.8 years of their retired lives. We assumed that our clients have the average savings for 55-year-old couple of $117,000 and annual salary of $60,580, and we also presume their incomes do not increase anymore. Considering pension and social security income, the couple will have a total income of $1,392,281.20 till they pass away.

2. Calculate the expected rate of return on each of the five investment alternatives listed in Exhibit 13.1 (p. 106). Based solely on expected returns, which of the potential investments appears best?

Prepare your responses to these assignment problems in a word processing file; put financial data in a spreadsheet file. As you complete the assignment problems for each lesson, add your responses to these files.

1. What are the financial issues facing the Hewlett Foundation (HF)? In particular, is HF’s newly proposed asset allocation policy adequate to meet the foundation’s long-term spending goal of sustaining a long-term real (or inflation-adjusted) payout ratio of 5%, while preserving capital in real terms? Is it adequate to meet its short-term objective of maintaining consistent spending without sharp fluctuations?

29) A financial manager must choose between four alternative Assets: 1, 2, 3, and 4. Each asset costs

Indicate the best answer for each question in the space provided. 1 Which of the following is not a capital budgeting decision? a Whether to acquire a subsidiary company. b Whether to expand a product line. c Whether to fill a special order. d Whether to purchase a fleet of trucks. 2 Which of the following is an example of a nonfinancial consideration in capital budgeting? a Will an investment generate adequate cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered

In conclusion, I have depicted the different types of asset classes for the mutual fund I selected as well as the Dow 30 organization. An asset class exists so that it can provide a structure to the vast array of financial instruments that are available in today 's financial market (Investopedia, 2006). As with any types of investments, they all has its risks and rewards and it is a matter of understanding how they are classified as well as its current investment environment.

The case gives Warren Buffet’s Journey from the time he and his partners acquired Berkshire Hathaway and how they successfully navigated through depressions and inflation period to bringing the company to a profitable venture. There is also an outline on the various investments along the way which contributed to diversification and also

Finally, when the expected return up to 10 percent, it will result an undiversified and higher risk portfolio whereby dependent based on the higher risk financial assets.