Robert Taylor, aged 50 recently retired and received a $500,000. He also obtained $700,000 through the exercise of stock options. Robert is in a 30% tax bracket. Robert is not entitled to a pension; however, his medical expenses are covered by insurance paid by his former employer. Robert is in excellent health and has normal life expectancy.

He plans to acquire a $300,000 home in three months and insist on paying cash. When presented with investment options, Robert consistently selects a most conservative alternative.

After settling into his new home, Robert living expenses will be $2,000 per month and will rise with inflation. He does not plan to work again. He is against investing in any company whose activities harm the environment.

a. What is Roberts Return requirement?

b. State with justification Roberts Risk Tolerance

c. Outline Robert 5 constraints

Robert has decided to invests $100,000 in his sons business. His total cash flow needs have changed to $4,200 a month and inflation is now estimated to be 1%.

d. Which allocation strategy from the table below is most appropriate for Robert (explain in terms of requirement objective and return per risk)

	ALLOCATION A	ALLOCATION B	ALLOCATION C	ALLOCATION D
ASSET CLASS WEIGHTINGS
STOCKS	20%	40%	60%	80%
BONDS	75%	55%	35%	15%
CASH	5%	5%	5%	5%
EXPECTED ANNUAL
RETURN	9.57%	10.71%	11.71%	13.00%
STANDARD DEVIATION	9.0%	11.5%	15.3%	19.0%
POTENTIAL FOR
ASSET GROWTH	Very low	Low	Moderate	High
INCOME GROWTH	Very low	Low	Moderate	High
CURRENT INCOME	High	High	Low	Very low
STABILITY	Very high	High	Moderate	Low

e. If a T-bill has a face value of $50,000, a current market price of $49,700 and a maturity in 100 days.

(i) What is the bank discount yield?

(ii) What is the Holding-Period Yield?

(iii) What is the Effective annual yield?

(iv) What is the money market yield?