Question
Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle, and has no children. He has interest in
Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active
lifestyle, and has no children. He has interest in a private company for $90 million and
has decided that a medical research foundation will receive half the proceeds now and
will be the primary beneficiary of his estate upon his death. Mr. Franklin is committed to
the foundation's well-being because he believes strongly that, through it, a cure will be
found for the disease that killed his wife. He now realizes that an appropriate investment
policy and asset allocations are required if his goals are to be met through investment of
his considerable assets. Currently, the following assets are available for use in building an
appropriate portfolio for him: $45.0 million cash (from sale of the private company
interest, net of a $45 million gift to the foundation) $10.0 million stocks and bonds ($5
million each) $ 9.0 million warehouse property (now fully leased) $ 1.0 million value of
his residence $65.0 million total available assets.
a) Formulate and justify an investment policy statement setting forth the appropriate
guidelines within which future investment actions should take place. Your policy
statement should encompass all relevant objective and constraint considerations.
b) Recommend and justify a long-term asset allocation that is consistent with the
investment policy statement you created in Part a. Briefly explain the key
assumptions you made in generating your allocation
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