Dedicated fixed-income portfolios


Assignment I –1 out of 4, 25% of the grade

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Dedicated fixed-income portfolios

CLIENT #2017-02: Mr. and Mrs. J. A. Barrows (4-6 pages, excluding appendices)

(Extracted from client’s file) è Mr. and Mrs. J. A. Barrows contacted us because they need some help about investing in fixed income. They own their own house; they already have equity investments, and they are considering investing $300,000 in fixed income. They tell us that they are interested in an investing horizon of 20 years (You may change it to 15 years if you cannot find 20 year bonds). We must prepare a report with at least the following information (verbatim from their contact letter):

 

  1. Using a single, corporate bond issue of the highest quality. What could we get in terms of returns and cash flows? Could we have annual cash flows over $15,000 per year? And could you please prepare some numbers with the following three different scenarios?
    1. One showing total preservation of wealth –that is, we end up with the same amount of bonds we started with.
    2. In the second scenario we would sell bonds each period so that we end up with about 50% of the bonds we initially purchased.
    3. In the third scenario, we would like to go on selling an even amount of bonds so that the initial capital is completely depleted by the end of the investment.

 

  1. How do each of these other investments compare with investing in the corporate bond fund? What bond funds would you recommend to us for long term investing?
    1. Savings/term bank accounts
    2. Long term CDs
    3. Long term Treasury bonds
    4. A bond mutual funds
    5. Immediate annuities? We understand there are lifetime annuities and specified period annuities. We are both 65 years old.

 

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