Louise and Christopher Maclin live in London, United Kingdom, and currently rent an apartment in the metropolitan area. Christopher Maclin, aged 40, is a supervisor at Barnett Co. and earns an annual salary of 80,000 before taxes. Louise Maclin, aged 38, stays home to care for their newborn twins. She recently inherited 900,000 (after wealth transfer taxes) in cash from herfathers estate. In addition, the Maclins have accumulated the following assets (current market value):

• 5,000 cash

• 160,000 in stocks and bonds

• 220,000 in Barnett common stock

  The value of their holdings in Barnett stock has appreciated substantially as a result of the companys growth in sales and profits during the past 10 years. Christopher Maclin is confident that the company and its stock will continue to perform well. The Maclins need 30,000 for a down payment on the purchase of a house and plan to make a 20,000 non-tax-deductible donation to a local charity in memory of Louise Maclins father. The Maclins annual living expenses are 74,000. After-tax salary increases will offset any future increases in their living expenses. During discussions with their financial adviser, Grant Webb, the Maclins express concern about achieving their educational goals for their children and their own retirement goals. Maclins tell Web:

• They want to have sufficient funds to retire in 18 years when their children begin their four years of university education

• They have been unhappy with the portfolio volatility they have experienced in recent years. They state that they do not want to experience a loss in portfolio value greater than 12 percent in any one year.

• They do not want to invest in alcohol and tobacco stocks

• They will not have any additional children

  After the discussions, Webb calculates that in 18 years the Marlins will need 2 million to meet their educational and retirement goals. Webb suggests that their portfolio be structured to limit shortfall risk to no lower than a negative 12 percent return in any one year. Maclins salary and all capital gains are taxed at 40 percent and no tax - sheltering strategies are available. Webbs next step is to formulate an investment policy statement for Maclins.

i. Formulate the risk objective of an investment policy statement for the Maclins.

ii. Formulate the return objective of an investment policy statement for the Maclins. Calculate the pre-tax rate of return that is required to achieve this objective. Show your calculations.

iii. Formulate the Time Horizon constraint portion of an investment policy statement for the Maclins

iv. Formulate the Liquidity constraint portion of an investment policy statement for the Maclins

v. Formulate the Tax constraint portion of an investment policy statement for the Maclins

vi. Formulate the Unique Circumstances portion of an investment policy statement for the Maclins