The Harvard Management Company and InflationProtected Bonds 7 Truma ulthe b0-wwat ina whet entervile ta an 1HL nint bariufio di timidation it thent on T. Liviterit. 2:32 2:32 T.bes TIP5 4 asd i7f cixmet oint ofianh bi - W. cos3% : (y) Questions for the HMC case study 1. What is the size of HMC's portfolio? How is the portfolio managed and what are the management costs? What are the pros and cons of the HMC's management style? 2. Why is HMC focusing on real returns? 3. What is a reasonable target expected return for HMC? Can it be achieved by investing in a riskless asset? 4. HMC's estimates of expected returns and standard deviations differ from the twentyyear historical estimates. Why might this be? Comment on the difference between the two sets of estimates. 5. Consider the Policy Portfolio in Exhibit 1. What is the role of the Policy Portfolio? Compute the buck-to-bang ratio for each asset, taking cash as the riskless asset (assume that cash returns are not correlated with returns on other asset classes). Based on this analysis, what changes do you recommend to the Policy Portfolio? Should TIPS be included in the Policy Portfolio? 6. What is the possible rationale behind the proposed Policy Portfolio in Exhibit 8. In particular, why are the adjustments so gradual relative to the results in Exhibit 6 ? The Harvard Management Company and InflationProtected Bonds 7 Truma ulthe b0-wwat ina whet entervile ta an 1HL nint bariufio di timidation it thent on T. Liviterit. 2:32 2:32 T.bes TIP5 4 asd i7f cixmet oint ofianh bi - W. cos3% : (y) Questions for the HMC case study 1. What is the size of HMC's portfolio? How is the portfolio managed and what are the management costs? What are the pros and cons of the HMC's management style? 2. Why is HMC focusing on real returns? 3. What is a reasonable target expected return for HMC? Can it be achieved by investing in a riskless asset? 4. HMC's estimates of expected returns and standard deviations differ from the twentyyear historical estimates. Why might this be? Comment on the difference between the two sets of estimates. 5. Consider the Policy Portfolio in Exhibit 1. What is the role of the Policy Portfolio? Compute the buck-to-bang ratio for each asset, taking cash as the riskless asset (assume that cash returns are not correlated with returns on other asset classes). Based on this analysis, what changes do you recommend to the Policy Portfolio? Should TIPS be included in the Policy Portfolio? 6. What is the possible rationale behind the proposed Policy Portfolio in Exhibit 8. In particular, why are the adjustments so gradual relative to the results in Exhibit 6