Robert Taylor, 50 years nd a US resident, recently retired and received a $500,000 cash payment from his employer as an early retirement incentive. He also obtained $700,000 by exercising his company stock options. Both amounts are net of tax. Taylor is not entitled to a pension; however, his medical expenses are covered by insurance paid for by his former employer. Taylor is in excellent health and has a normal life expectancy. Taylor's wife died last year after a long illness, which resulted in devastating medical expenses. All their investments, including a home, were liquidated to fully satisfy these medical expenses. Taylor has no assets other than the $1.2 million cash referenced above, and he has no debts. He plans to acquire a $300,000 home in three months and insists on paying cash given his recent adverse experience with creditors. When presented with investment options, Taylor consistently selects the most conservative alternative. After settling into his new home, Taylor's living expenses will be $2,000 per month and will rise with inflation. He does not plan to work again. Taylor's father and his wife's parents died years ago. His mother, Renee, is 72 years old and in excellent physical health. Her mental health, however, is deteriorating and she has relocated to a long-term care facility. Renee's expenses total $3,500 per month. Her monthly income is $1,500 from pensions. Her income and expenses will rise with inflation. She has no investments or assets of value. Taylor, who has no siblings, must cover Renee's income shortfall. Taylor has one child, Troy. Troy and a friend need funds immediately for a start-up business with first-year costs estimated at $200,000. The partners have no assets and have been unable to obtain outside financing. The friend's family has offered to invest $100,000 in the business in exchange for a minority equity stake if Taylor agrees to invest the same amount. Taylor would like to assist Troy; however, he is concerned about the partners' ability to succeed, the potential loss of his funds, and whether his assets are sufficient to support his needs and to support Renee. He plans to make a decision on this investment very soon. If he invests $100,000 in Troy's business, he insists that this investment be excluded from any investment strategy developed for his remaining funds. With the above information, portfolio manager Sarah Wheeler prepared the investment policy statement for Taylor shown in the following exhibit. A. Evaluate the appropriateness of Taylor's investment policy statement with regard to the following objectives: i. Return requirement ii. Risk tolerance iii. Time horizon iv. Liquidity requirements After revising the investment policy statement and confirming it with Taylor, Wheeler is now developing a long-term strategic asset allocation for Taylor. Wheeler will use the following revised information to recommend one of the allocation in Exhibit 2. - Taylor has decided to invest $100,000 in his son's business but still insists that this investment be disregarded in making his allocation decision. - Taylor's total cash flow needs have changed to $4,200 a month. - The available asset base is $800,000. - Wheeler estimates that the inflation rate will be 1% next year. - Taylor is determined to maintain the real value of his assets because he plans to set up a charitable foundation in the future. - Taylor insists on taking no more risk than absolutely necessary to achieve his return goals. Select the strategic asset allocation that is most appropriate for Taylor and justify your selection with as many supporting reasons as you can related to the revised information shown above. Show your calculations necessary for your reasoning