In Pickering, Kentar has a C$2.5 million portfolio that has a large concentration is small capitalization U.S. equities. Over the past five years, the portfolio has averaged 15% annual total return on investment. Kentaro wishes that over the long term, his portfolio will continue to earn 15% annually. When asked about his risk tolerance, he described it as "average." He was surprised to learn when informed that the U.S. small-cap portfolios have experienced extremely high volatility. He does not expect to retire before age 70. His current income is more than sufficient to meet his expenses. Upon retirement, he plans to sell his architectural design business and use the proceed to purchase an annuity to cover his post- retirement cash flow needs. Both his income and realized capital gains are taxed at a 40% rate. No pertinent legal or regulatory issues apply. He has no pension or retirement plan but does have sufficient health insurance for post- retirement needs. Let's assume you are hired by Kentar as his main financial advisor. a. In formulating the return objective for Kentar's investment policy statement, what is the most appropriate determining factor that you should focus on? Explain. b. How can you characterize his willingness and ability to accept risk? c. How can you characterize his tax and liquidity constraints? d. Discuss Kentaro's time horizon.