1、CHAPTER 2THE ASSET ALLOCATION DECISIONAnswers to Questions1.In answering this question, one assumes that the young person has a steady job, adequate insurance coverage, and sufficient cash reserves. The young individual is in the accumulation phase of the investment life cycle. During this phase, an 。

2、 individual should consider moderately high-risk investments, such as common stocks, because he/she has a long investment horizon and earnings ability. 2.In answering this question, one assumes that the 63-year-old individual has adequate insurance coverage and a cash reserve. Depending on her incom 。

3、e from social security, she may need some current income from her retirement portfolio to meet living expenses. At the same time, she will need to protect herself against inflation. Removing all her money from her companys retirement plan and investing it in money market funds would satisfy the inve 。

4、stors short-term current income needs. Investing in long-term investments, such as common stock mutual funds, would provide the investor with needed inflation protection.3.Typically investment strategies change during an individuals lifetime. In the accumulating phase, the individual is accumulating 。

5、 net worth to satisfy short-term needs (e.g., house and car purchases) and long-term goals (e.g., retirement and childrens college needs). In this phase, the individual is willing to invest in moderately high-risk investments in order to achieve above-average rates of return.In the consolidating pha 。

6、se, an investor has paid off many outstanding debts and typically has earnings that exceed expenses. In this phase, the investor is becoming more concerned with long-term needs of retirement or estate planning. Although the investor is willing to accept moderate portfolio risk, he/she is not willing 。

7、 to jeopardize the “nest egg.”In the spending phase, the typical investor is retired or semi-retired. This investor wishes to protect the nominal value of his/her savings, but at the same time must make some investments for inflation protection. The gifting phase is often concurrent with the spendin 。

8、g phase. The individual believes that the portfolio will provide sufficient income to meet expenses, plus a reserve for uncertainties. If an investor believes there are excess amounts available in the portfolio, he/she may decide to make “gifts” to family or friends, institute charitable trusts, or。

9、establish trusts to minimize estate taxes. 4. A policy statement is important for both the investor and the investment advisor. A policy statement assists the investor in establishing realistic investment goals, as well as providing a benchmark by which a portfolio managers performance may be measur 。

10、ed. 5.Student Exercise6.The 45-year old uncle and 35-year old sister differ in terms of time horizon. However, each has some time before retirement (20 versus 30 years). Each should have a substantial proportion of his/her portfolio invested in equities, with the 35-year old sister possibly having m 。

11、ore equity investments in small firms or international firms (i.e., can tolerate greater portfolio risk). These investors could also differ in current liquidity needs (such as children, education expenses, etc.), tax concerns, and/or other unique needs or preferences.7.Before constructing an investm 。

【investment analysis and portfolio management|solution manual for 《investment analysis and portfolio management》 ch02】12、ent policy statement, the financial planner needs to clarify the clients investment objectives (e.g. capital preservation, capital appreciation, current income or total return) and constraints (e.g. liquidity needs, time horizon, tax factors, legal and regulatory constraints, and unique needs and pr 。

13、eferences).8.Student Exercise9. CFA Examination III (1993)9(a).At this point we know (or can reasonably infer) that Mr. Franklin is:unmarried (a recent widower)childless70 years of agein good healthpossessed of a large amount of (relatively) liquid wealth intending to leave his estate to a tax-exemp 。

14、t medical research foundation, to whom he is also giving a large current cash giftfree of debt (not explicitly stated, but neither is the opposite)in the highest tax brackets (not explicitly stated, but apparent)not skilled in the management of a large investment portfolio, but also not a complete n 。

15、ovice since he owned significant assets of his own prior to his wifes deathnot burdened by large or specific needs for current incomenot in need of large or specific amounts of current liquidityTaking this knowledge into account, his Investment Policy Statement will reflect these specifics:Objective 。

16、s:Return Requirements: The incidental throw-off of income from Mr. Franklins large asset pool should provide a more than sufficient flow of net spendable income. If not, such a need can easily be met by minor portfolio adjustments. Thus, an inflation-adjusted enhancement of the capital base for the。

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标题：investment analysis and portfolio management|solution manual for 《investment analysis and portfolio management》 ch02