You just landed a job as a fixed-income portfolio manager with Springfield Mutual Life Insurance Company. Your immediate supervisor, Mr. Waylon Smithers, has given you a small account to manage to test your skills as a bond fund strategist. You have been charged with the responsibility for funding the liabilities of a small life term plan sold to the employees of the Springfield Cracker Factory twenty years ago. All policies will either be paid out or cashed-in within the next ten years. The actuarial staff has estimated the expected cash outflows required on this policy and they are outlined on a separate sheet.

In order to fund these liabilities, Mr. Smithers has endowed you with $10,000,000 to invest as you feel appropriate. Smithers suggests that you first work out a portfolio management strategy that you think is best suited. Next, you should select the optimal mix of fixed-income investments to meet your investment objectives. After constructing your portfolio you should prepare a detailed report outlining your strategy and investment plan. This report should also justify your bond selections. To test if you are able to incorporate several of the available credit market instruments in your strategy, Smithers requires that you include at least one Treasury security, one corporate bond, one municipal bond and one asset backed security in your portfolio. Luckily, you know your way around Factset, so finding the appropriate fixed income instruments is going to be a piece of cake. In addition, the excellent training that you receive in your fixed income course will help you make the proper decisions.