A client $($Janet and John Smith$)$ would like you to help them prepare an investment policy statement for a retirement portfolio, which would be managed by a portfolio manager. Your client and her husband are both $55$ years old and have a combined annual income of $$200,000,$ which is sufficient to meet all the financial obligations of their current lifestyle. They have just finished paying$-$off the mortgage on their home and their children's college education and are now focused on planning for their retirement. Currently, they have three$-$quarter of a million dollars accumulated in their tax$-$deferred retirement savings $(401$K$)$ and another quarter of a million dollars in a FDIC insured savings account. They plan to commit both funds to this new investment account and to continue making annual contributions of $$25,000$ to the account until the time they retire. They would also like to keep $5\%$ of the new investment in liquid assets to meet emergency needs. Janet and her husband are risk$-$adverse and both plan to retire at the age of sixty$-$five. They estimate they will need two million dollars in addition to their social security benefits to live comfortably from then on$.$

a$.$ What is the annual return objective for your client?

b$.$ Prepare a draft investment policy statement which reflects your client's objectives and constraints. Be specific and complete in presenting the objectives and constraints. $($You may choose to specify how your neighbor's asset should be allocated$).$

c$.$ Suppose your client suggests that you specify a $100\%$ stock portfolio allocation in their investment policy statement. Explain why this suggestion may not be appropriate for your neighbor.

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