FNCE 3170
Assignment Fall 2022
Juanita Lopez is the consumer, and you’re her portfolio supervisor. The yr is 2022 and he or she is retiring now at age 65. Juanita’s life expectancy is age 85. Ms. Lopez’s funding fund is $three.5 million. She has requested you to develop a bond portfolio that can generate $230,000 beginning in a single yr (2023). To keep up the buying energy (sustain with inflation) of her retirement earnings you anticipate 1% development every year in her artificial pension.
Constraints on the bond portfolio are:
1. All bonds are chosen from the supplied NYSE bond market file.
2. Assume the market worth of all bonds is par worth of $1000. Given this simplification, you can not select any bond with a coupon price higher than four.5%.
three. As soon as a bond is put into the funding portfolio you solely obtain the coupon, maturity worth (if it matures), and reinvest on the said price beneath.
four. Bond coupon and par worth (at maturity) money flows can be reinvested at 2% per yr except used for cost to Ms. Lopez.
5. Assume coupon money flows and maturity worth are on the birthday of Juanita. That’s, a coupon or maturity worth obtained in 2023 is on the birthday of Juanita no matter precise date in 2023 and so forth.
6. You can’t borrow funds.
7. You will need to meet the required annual earnings cost.
eight. Funding grade solely bonds are to be included within the funding portfolio.
9. The minimal market worth weighted bond score of the bond portfolio is A grade.
10. You can’t make investments greater than 10% of your capital in anyone bond or issuer.
Present your constructed bond portfolio (for every bond the whole worth and bond score), money flows generated for every year from coupon and maturity worth and reinvested funds, and consumer earnings wants.
Submit as ONE file within the Moodle course web site dropbox by 12 midday on November 14, 2022. Late submissions will incur a penalty.
