Chapter 22, Problem 8CP

Summary Introduction

(A)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Liquidity Requirement:

The current assets and cash equivalent are the requirements which in further can be converted into cash easily.

W Museum's liquidity needs are a significant factor given the budget considerations.

Conclusion

W Museum's liquidity needs are a significant factor given the budget considerations.

Summary Introduction

(B)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Return Requirement:

The minimum amount received by the investor by investing his money is the return on the investment.

The minimum returns required by the W to meet the budget requirements are as follows:

$\begin{array}{l}2013-12\%;\\ 2014-13\%;and\\ 2015-14\%.\end{array}$

Conclusion

The minimum returns required by the W to meet the budget requirements are as follows:

$\begin{array}{l}2013-12\%;\\ 2014-13\%;and\\ 2015-14\%.\end{array}$

Summary Introduction

(C)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Risk Tolerance:

Risk tolerance is the ability to bear risk by the investor at the time of investment.

If we talk about the woods, then the risk tolerance is low because of the trustee's lack of

confidence and tight budget requirement.

Conclusion

If we talk about the woods, then the risk tolerance is low because of the trustee's lack of

confidence and tight budget requirement.

Summary Introduction

(D)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Time Horizon:

The investor hold the security for a certain period of time to get the desired return after that he take off the position on that security so the duration at which the security is kept by the inventory is called the time horizon.

If we talk about the wood then here time horizon is short because the budget requirement is 1-3 years.

Conclusion

If we talk about the wood then here time horizon is short because the budget requirement is 1-3 years.

Summary Introduction

(E)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Tax consideration:

Every investor has to pay a certain amount of tax to the federal government on their income, which is called tax consideration.

In this case, wood is exempted from the tax liability.

Conclusion

In this case, wood is exempted from the tax liability.

Summary Introduction

(F)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Regulatory and Legal Considerations:

It means that all the fund and policies are regulated under certain rules and regulations and bind legally so that all the action can be taken legally.

Conclusion

It means that all the fund and policies are regulated under certain rules and regulations and bind legally so that all the action can be taken legally.

Summary Introduction

(G)

Adequate information:

Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2013, $3.2 million in 2014, and $3.5 million in 2015 from the endowment fund to balance the budget in those years.

To compute:

To explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Introduction:

To explain how each of the given information relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

Explanation of Solution

Unique Needs and Circumstances:

These are those circumstances, which reflect the choice of the fund trustees. For example, social factors could be a concern of the Museum that the trustees want reflected in the types of investment deemed appropriate for the fund.

Conclusion

These are those circumstances, which reflect the choice of the fund trustees. For example, social factors could be a concern of the Museum that the trustees want reflected in the types of investment deemed appropriate for the fund.