Designing an Investment Portfolio for a Special Client
Design a portfolio for a special client.
Client :is a 45 year old married couple. They are risk averse. They have two children, one is 14 the other is 18. They have savings of £90,000 in an instant access bank savings account that pays interest of 0.01% p.a. They have combined earnings of £80,000 p.a. They have a mortgage with 10 years remaining and pay £1,900 on their mortgage each month. Their house has a current market value of £350,000.
Assignment guidance
BEAM031 Assignment guidance.
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(a) Provide a 200 word summary of the Investor Policy Statement you have created for your client. (10 marks) Guidance: You MUST state which client you have been allocated. You should also include the following: Client’s age. Client’s risk tolerance. Client’s unique need. Client’s investment objectives (saving to buy a house, retirement etc.) Client’s investment horizon (how long do they want to invest for e.g. 1 year, 30 years etc.) Estimate of client’s total wealth. Estimate of client’s expenditure (i.e. for day-to-day living, holidays etc.). Estimate of the amount the client has available to invest (wealth minus expenditure). What investment strategy are you going to recommend (e.g. passive, active etc.)? Why are you making this recommendation? |
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(b) Provide a table listing all of the investment instruments that you have chosen to include in the final portfolio for your client. Demonstrate that purchasing these investment instruments has not cost more than the total amount of money the client had available for investment. (10 marks) Guidance: List all of the investments you are recommending e.g. Shares Bonds Alternative investments etc. State the total amount of cash invested in each category (bonds, shares etc.) State this figure in UK £. Give the total cost of the portfolio of all investments and compare this figure to the answer you have given in part (a). |
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(c) (i) Explain which equities you have chosen to include in your client(s) portfolio and explain why you have chosen to include these companies. (25 marks) Hint: You will need to explain how the investments you have chosen meet the needs of the client outlined in the Investor Policy Statement. Guidance: Either list each company you have chosen to invest in or the mutual fund(s) etc. you have chosen. Explain why you have chosen each of the equities/ funds and why you think they are suitable for the client. You should use both the characteristics of your client and course material to justify your choice of investments; it is your justification for the choices that you make that will receive most marks. |
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(c) (ii) Detail each of the investment instruments, other than equities, that you have included in your clients portfolio. Explain why you have included them and how and why you think these investments are suitable for your client(s). (40 marks) Hint: You will need to explain how the investments you have chosen meet the needs of the client outlined in the Investor Policy Statement. Guidance: List each non-equity investment you have chosen to invest in. Explain why you have chosen each of the non-equity investments and why you think they are suitable for the client. You should use both the characteristics of your client and course material to justify your choice of investments; it is your justification for the choices that you make that will receive most marks. |
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(iii) What is the beta of your portfolio? Provide your calculations. (5 marks) Guidance: Look-up or calculate the beta of each investment. You must give the source of any data you use. You may have to estimate some betas, or you can use in information on slide 57 of the Equity valuation III lecture. |
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(iv) Explain the limitations of the portfolio you have created. (10 marks) Guidance: Are there any ways in which your suggested portfolio is not perfect given the needs and investment objectives of your client? |
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References You must include references to all of the information you use, both in the references at the end of the assignment and in the text of the assignment. See the document I have put in the assessment section on ELE; Business School’s ‘A Guide to Citing, Referencing and Avoiding Plagiarism’ |
Table of Contents TOC \o "1-3" \h \z \u Investment Policy Statement….…………………………………………………………...……3Client/Circumstances..…………………………………………………………………………...3Risk & return Expectations……………………………………………………………………..3Time Horizon…...………………………………………………………………………………...3Financial Goals…...……………………………………………………………………………....3Purpose of Portfolio…..………………………………………………………………………….3Target Asset Allocation…..……………………………………………………………………...3Investment Amount………………………………….…………………………………………..3Total Wealth………..…………………………………………………………………………….4Expense……………...……………………………………………………………………………4Service Relation….......………………………………………………………………………..….4Unique Need……...…...……………………………………………………………………...…..4Rebalancing & review……..…..…………………………………………………………………4Investment Policy……..………………………………………………………………………….4Investment Universe………………….………………………………………………………….4List of Investment Instruments………………………………………………………………….4Fixed Income……………………………………………………………………………………..5National Grid Electricity Transmission………………………………………………………...5GlaxoSmithKline Capital………………………………………………………………………..6Prudential Plc…………………………………………………………………………………….6Treasury 1,5/8% 22/10/2028…………………………………………………………………….7Treasury 3,3/4%, 2052…………………………………………………………………………...8Treasury 3.5% 2068……………………………………………………………………………...8Equities……………………………………………………………………………………………9BT Group…………………………………………………………………………………………9Rentokil Initial…………………………………………………………………………………...9Tesco……………………………………………………………………………………………..10Equities Selection……………………………………………………………………………….10Fixed Income Instruments……………………………………………………………………..11National Grid Electricity Transmission……………………………………………………….12GlaxoSmithKline Capital………………………………………………………………………12Prudential Plc…………………………………………………………………………………...12Treasury 1.5/8% 22/10/2028…………………………………………………………………...13Treasury 3,3/4% 2057…………………………………………………………………………..13Treasury 3.5% 2068…………..…………………………………………………………….......13Portfolio Beta……………………………………………………………………………………13 1:BT Group……………………………………………………………………………..14 2: Rentokil Initials……………………………………………………………………...14 3:Tesco…………………………………………………………………………………..14Portfolio Limitations……………………………………………………………………………14References……………………………………………………………………………………….15
Investment Policy Statement
Client/Circumstances:
The client is a 45 year old couple.
Risk & return Expectations:
Risk tolerance of the client is low and should generate enough returns to meet the financial goals.
Time Horizon:
Multi-stage in nature:
1 Stage comprises of 8 years (till children graduates)
2 Stage 2 comprises of 7 years (retirement at 60)
3 Stage 3: retirement life
Financial Goals:
The two main financial goals are:
* To pay for the education expenses of their children
* To maintain standards of living after retirement.
Purpose of Portfolio:
To achieve the financial goals, both short and long term in an effective manner
Target Asset Allocation:
Targeted asset allocation will be 75%-25% in favor of fixed Income.
Investment Amount:
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