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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 foundations

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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