券和组合课后习题答案：sm02

CHAPTER2

THEASSETALLOCATIONDECISION

AnswerstoQuestions

1.Inansweringthisquestion,oneassumesthattheyoungpersonhasasteadyjob,adequate

insurancecoverage,andsufficientcashreserves.Theyoungindividualisinthe

accumulationphaseoftheinvestmentlifecycle.Duringthisphase,anindividualshould

considermoderatelyhigh-riskinvestments,suchascommonstocks,becausehe/shehasa

longinvestmenthorizonandearningsability.

2.Inansweringthisquestion,oneassumesthatthe63-year-oldindividualhasadequate

insurancecoverageandacashreserve.Dependingonherincomefromsocialsecurity,

shemayneedsomecurrentincomefromherretirementportfoliotomeetlivingexpenses.

Atthesametime,shewillneedtoprotectherselfagainstinflation.Removingallher

moneyfromhercompany'sretirementplanandinvestingitinmoneymarketfunds

wouldsatisfytheinvestor'sshort-termcurrentincomeneeds.Investinginlong-term

investments,suchascommonstockmutualfunds,wouldprovidetheinvestorwith

neededinflationprotection.

3.Typicallyinvestmentstrategieschangeduringanindividuafslifetime.Inthe

accumulatingphase,theindividualisaccumulatingnetworthtosatisfyshort-termneeds

(e.g.,houseandcarpurchases)andlong-termgoals(e.g.,retirementandchildren's

collegeneeds).Inthisphase,theindividualiswillingtoinvestinmoderatelyhigh-risk

investmentsinordertoachieveabove-averageratesofreturn.

Intheconsolidatingphase,aninvestorhaspaidoffmanyoutstandingdebtsandtypically

hasearningsthatexceedexpenses.Inthisphase,theinvestorisbecomingmore

concernedwithlong-termneedsofretirementorestateplanning.Althoughtheinvestoris

willingtoacceptmoderateportfoliorisk,he/sheisnotwillingtojeopardizethe“nest

egg."

Inthespendingphase,thetypicalinvestorisretiredorsemi-retired.Thisinvestorwishes

toprotectthenominalvalueofhis/hersavings,butatthesametimemustmakesome

investmentsforinflationprotection.

Thegiftingphaseisoftenconcurrentwiththespendingphase.Theindividualbelieves

thattheportfoliowillprovidesufficientincometomeetexpenses,plusareservefor

uncertainties.Ifaninvestorbelievesthereareexcessamountsavailableintheportfolio,

he/shemaydecidetomake“gifts“tofamilyorfriends,institutecharitabletrusts,or

establishtruststominimizeestatetaxes.

4.Apolicystatementisimportantforboththeinvestorandtheinvestmentadvisor.Apolicy

statementassiststheinvestorinestablishingrealisticinvestmentgoals,aswellas

providingabenchmarkbywhichaportfoliomanager'sperformancemaybemeasured.

5.StudentExercise

6.The45-yearolduncleand35-yearoldsisterdifferintermsoftimehorizon.However,

eachhassometimebeforeretirement(20versus30years).Eachshouldhavea

substantialproportionofhis/herportfolioinvestedinequities,withthe35-yearoldsister

possiblyhavingmoreequityinvestmentsinsmallfirmsorinternationalfirms(i.e.,can

tolerategreaterportfoliorisk).Theseinvestorscouldalsodifferincurrentliquidityneeds

(suchaschildren,educationexpenses,etc.),taxconcerns,and/orotheruniqueneedsor

preferences.

7.Beforeconstructinganinvestmentpolicystatement,thefinancialplannerneedstoclarify

theclienfsinvestmentobjectives(e.g.capitalpreservation,capitalappreciation,current

incomeortotalreturn)andconstraints(e.g.liquidityneeds,timehorizon,taxfactors,

legalandregulatoryconstraints,anduniqueneedsandpreferences).

8.StudentExercise

9.CFAExamination111(1993)

9(a).Atthispointweknow(orcanreasonablyinfer)thatMr.Franklinis:

•unmarried(arecentwidower)

•childless

•70yearsofage

•ingoodhealth

•possessedofalargeamountof(relatively)liquidwealthintendingtoleavehisestate

toatax-exemptmedicalresearchfoundation,towhomheisalsogivingalarge

currentcashgift

•freeofdebt(notexplicitlystated,butneitheristheopposite)

•inthehighesttaxbrackets(notexplicitlystated,butapparent)

•notskilledinthemanagementofalargeinvestmentportfolio,butalsonotacomplete

novicesinceheownedsignificantassetsofhisownpriortohiswife'sdeath

•notburdenedbylargeorspecificneedsforcurrentincome

•notinneedoflargeorspecificamountsofcurrentliquidity

Takingthisknowledgeintoaccount,hisInvestmentPolicyStatementwillreflectthese

specifics:

Objectives:

ReturnRequirements:Theincidentalthrow-offofincomefromMr.Franklin'slargeasset

poolshouldprovideamorethansufficientflowofnetspendableincome.Ifnot,sucha

needcaneasilybemetbyminorportfolioadjustments.Thus,aninflation-adjusted

enhancementofthecapitalbaseforthebenefitofthefoundationwillbetheprimary

returngoal(i.e.,realgrowthofcapital).Taxminimizationwillbeacontinuingcollateral

goal.

RiskTolerance:Accountcircumstancesandthelong-termreturngoalsuggestthatthe

portfoliocantakesomewhataboveaveragerisk.Mr.Franklinisacquaintedwiththe

natureofinvestmentriskfromhispriorownershipofstocksandbonds,hehasastilllong

actuariallifeexpectancyandisingoodcurrenthealth,andhisheir-thefoundation,

thankstohisgenerosity-isalreadypossessedofalargeassetbase.

Constraints:

TimeHorizon:EvendisregardingMr.Franklin'sstill-longactuariallifeexpectancy,the

horizonislong-termbecausetheremainderofhisestate,thefoundation,hasavirtually

perpetuallifespan.

LiquidityRequirement:Givenwhatweknowandtheexpectationofanongoingincome

streamofconsiderablesize,noliquidityneedsthatwouldrequirespecificfundingappear

toexist.

Taxes:Mr.Franklinisnodoubtinthehighesttaxbrackets,andinvestmentactionsshould

takethatfactintoaccountonacontinuingbasis.Appropriatetax-shelteredinvestment

(standingontheirownmeritsasinvestments)shouldbeconsidered.Taxminimization

willbeaspecificinvestmentgoal.

LegalandRegulatory:Investments,ifunderthesupervisionofaninvestment

managementfirm(i.e.,notmanagedbyMr.Franklinhimself)willbegovernedbystate

lawandthePrudentPersonrule.

UniqueCircumstances:Thelargeassettotal,thefoundationastheirultimaterecipient,

andthegreatfreedomofactionenjoyedinthissituation(i.e.,freedomfromconfining

considerations)areimportantinthissituation,ifnotnecessarilyunique.

9(b).Giventhatstockshaveprovided(andareexpectedtocontinuetoprovide)higherrisk-

adjustedreturnsthaneitherbondsorcash,andconsideringthatthereturngoalisfbrlong­

term,inflation-protectedgrowthofthecapitalbase,stockswillbeallottedthemajority

positionintheportfolio.ThisisalsoconsistentwithMr.Franklin'sabsenceofeither

specificcurrentincomeneeds(theongoingcashflowshouldprovideanadequatelevel

forcurrentspending)orspecificliquidityneeds.Itislikelythatincomewillaccumulate

tosomeextentand,ifso,willautomaticallybuildaliquidemergencyfundfbrMr.

Franklinastimepasses.

Sincetheinheritedwarehouseandthepersonalresidencearesignificant(15%)realestate

assetsalreadyownedbyMr.Franklin,nofurtherallocationtothisassetclassismade.It

shouldbenotedthatthewarehouseisasourceofcashflow,adiversifyingassetand,

probably,amodestinflationhedge.Fortaxreasons,Mr.Franklinmaywishtoconsider

puttingsomedebtonthisasset,freeingadditionalcashforalternativeinvestmentuse.

Giventhelong-termorientationandtheabove-averagerisktoleranceinthissituation,

about70%oftotalassetscanbeallocatedtoequities(includingrealestate)andabout

30%tofixedincomeassets.Internationalsecuritieswillbeincludedinbothareas,

primarilyfortheirdiversificationbenefits.Municipalbondswillbeincludedinthefixed

incomeareatominimizeincometaxes.Thereisnoneedtopressforyieldinthissituation,

noranyneedtodeliberatelydowngradethequalityoftheissuesutilized.Venturecapital

investmentcanbeconsidered,butanycommitmenttothis(orother“alternative“assets)

shouldbekeptsmall.

Thefollowingisoneexampleofanappropriateallocationthatisconsistentwiththe

InvestmentPolicyStatementandconsistentwiththehistoricalandexpectedreturnand

othercharacteristicsofthevariousavailableassetclasses:

Current

Range(%)Target(%)

Cash/MoneyMarket0-50

U.S.FixedIncome10-2015

Non-U.S.FixedIncome5-1510

U.S.Stocks(LargeCap)30-453()

(SmallCap)15-2515

Non-U.S.Stocks15-2515

RealEstate10-1515*

Other0-50

100

*IncludestheFranklinresidenceandwarehouse,whichtogethercomprisethe

proportionoftotalassetsshown.

AnalternateallocationcouldwellbeweightedmoreheavilytoU.S.fixedincome

andlesssotoU.S.stocks,giventhenearequalityofexpectedreturnsfromthose

assetsasindicatedinTable4.

CHAPTER2

AnswerstoProblems

1.Mostexpertsrecommendthatabout6month'sworthoflivingexpensesbeheldincash

reserves.Althoughthesefundsareidentifiedas"cash,“itisrecommendedthattheybe

investedininstrumentsthatcaneasilybeconvertedtocashwithlittlechanceoflossinvalue

(e.g.,moneymarketmutualfunds,etc.).

Mostexpertsrecommendthatanindividualshouldcarrylifeinsuranceequalto7-10times

anindividual'sannualsalary.Anunmarriedindividualshouldhavecoverageequaltoat

least7timessalary,whereasamarriedindividualwithtwochildrenshouldhavemore

coverage(possibly9-10timessalary).

2.Married,filingjointly,$20,000taxableincome:

Marginaltaxrate=15%

Taxesdue=$20,000X.15=$3,000

Averagetaxrate=3,000/20,000=15%

Married,filingjointly,$40,000taxableincome:

Marginaltaxrate=15%

Taxesdue=$40,000x.15=$6,000

Averagetaxrate=6,000/40,000=15%

Married,filingjointly,$60,000taxableincome:

Marginaltaxrate=28%

Taxesdue=$6,780+.28($60,000-$45,200)

=$6,780+$4,144=$10,924

Averagetaxrate=10,924/60,000=18.21%

3.Singlewith$20,00()taxableincome:

Marginaltaxrate=15%

Taxesdue=$20,000X.15=$3,00()

Averagetaxrate=3,000/20,000=15%

Singlewith$40,000taxableincome:

Marginaltaxrate=28%

Taxesdue=$4,057.50+.28($40,000-$27,050)

=$4,057.50+$3,626=$7,683.50

Averagetaxrate=7,683.50/40,000=19.21%

Singlewith$60,000taxableincome:

Marginaltaxrate=28%

Taxesdue=$4,057.50+.28($60,000-$27,050)