Question

QUESTION TWO
Investment Environment & Management Process
Floro is a young energetic lady aged 23, she is in excellent health, she lives a simple but active lifestyle, and currently childless. Through her boyfriend’s advice who is a Finance guru, she has developed interest in investment related activities and has interest in investing K70, 000 resources given to her upon her graduation from Mulungushi University as a present from her boyfriend. She doesn’t want her boyfriend to know about these plans and decides to seek for advice from you as an investment scholar. She is currently unemployed but is actively looking for full-time employment which is promising to come by any moment. She is also looking forward to starting a family in the near future. Currently, the following assets are available for use in building an appropriate portfolio:
a. What comprehensive Investment policy statement would you formulate for Floro? It should be inclusive of important Objectives and constraints.
b. Given the information, what long term asset allocation (Minimum Three Assets) would you provide for the investment Policy statement and what assumptions are you putting in place to justify its usage.

Answer 1

A.

objectives:-

1. as she is going to start work she will be going to earn in near future so she does not requiere this money in near fututre, she might require this money for the education of her child.

2. to get home

3. to get Car

4. to save for the retirement purposes.

constrains:-

1. she would require the fix income untill she starts working for the full time

2. as she is young she wants to take more risk as she is energetic women.

B.

the First Asset in the portfolio should be the stocks of the Blue chips companies which can provide substaintail return in long run.(70%)

second Asset but the very small portion of the portfolio should include some fix income securities as she has not start working yet she will require the amount for the survival untill she gets the job after that also some amonut must be in a fix income securites for the diversification purposes.(15%)

Third Asset to be the investment in some small cap companies which can provide high risk high return as she is still young she is able to take high risk now. (10%)