Problem 1:
Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle, and has no children. He has interest in a private company for $90 million and has decided that a medical research foundation will receive half the proceeds now and will be the primary beneficiary of his estate upon his death. Mr. Franklin is committed to the foundation's well-being because he believes strongly that, through it, a cure will be found for the disease that killed his wife. He now realizes that an appropriate investment policy and as-set allocations are required if his goals are to be met through investment of his consider-able assets. Currently, the following assets are available for use in building an appropriate portfolio for him:
$45.0 million cash (from sale of the private company interest, net of a $45 million gift to the foundation)
$10.0million stocks and bonds ($5 million each)
$9.0 million warehouse property (now fully leased)
$1.0 million value of his residence
$65.0million total available assets
a. Formulate and justify an investment policy statement setting for the appropriate guidelines within which future investment actions should take place. Your policy state-ment should encompass all relevant objective and constraint considerations.
b. Recommend and justify a long-term asset allocation that is consistent with the investment policy statement you created in Part a. Briefly explain the key assumptions you made in generating your allocation.