Instructions:

You are an investment analyst for Mango Financial Management, an independent financial consulting firm. Your latest assignment is to provide an independent assessment of Big Rock Building Inc. Big Rock is a Caribbean based company that manufactures building products and provides services for the construction and engineering sectors. The company has several divisions which operate as separate entities. The case study analysis consists of four core sections, and you will have to either conduct research or perform calculations. The assessment must be completed within five days, because a meeting has been scheduled with the client to discuss your findings.

1. Asset Allocation

The companys pension plan is managed by Castle Fund Managers, a leading provider of pension services. It is a defined contribution plan, where the employees contributions are matched by the employer. Each employee had to choose one of the following investment options for their individual plans:

a. Preferred Accumulator (PA): Short-term focus

b. Balanced Accumulator (BA): Medium-term focus

c. Select Accumulator (SA): Long-term focus.

However, there has been some concern raised over how the pension fund is being managed. Some employees are upset that Castle Fund Managers uses a diversified asset allocation strategy for its investment. Required: Prepare a short report which explains:

a. The importance of strategic asset allocation,

b. Three (3) benefits of using this approach,

c. Three (3) factors that could affect how assets are allocated. [8 marks]

2. The Bond Market Big Rocks directors are looking to expand into a new suite of services. Although they are doing quite well in their existing lines of business, analysts have identified some new areas for development. One of these is expansion into manufacturing prefabricated homes. However, this venture requires a large amount of funding. To raise additional funds to finance this new project, the company is considering issuing a new bond.

Required: Prepare a short report which supports the case for issuing a corporate bond. In your report,

a. Explain what a corporate bond is,

b. Outline the characteristics of the bond market,

c. Explain the benefits of issuing bonds to raise financing. [7 marks]

3. Markowitz Portfolio Theory Saving cash in the bank is not as attractive as it was in the past, and Big Rock is looking to invest some of its surplus cash. In a meeting with senior managers in the company, you mention the Modern Portfolio Theory which was pioneered by Markowitz. Required: Explain to the senior managers,

a. The purpose of the Markowitz Portfolio Theory,

b. Who would benefit from this theory,

c. What is the key component of the theory. [6 marks]