SECTION 6.2.2. LO.F. COPYRIGHT © IFT. ALL RIGHTS RESERVED. PAGE 3 COPY...
5. Bart's time horizon is best described as: A. short term, single-stage. B. long term, single-stage. C. long term, multistage. The following information relates to questions 6 – 10. Danny Corvo, aged 40, just completed the sale of his technology start-up DMX, a customer loyalty platform to a public listed company PSMX Ltd. for cash and stock. The terms of the sale specify that Danny cannot sell the stock in PSMX for the next four years during which he will be a director in the company. Danny meets with Jonathan Levi, a portfolio manager at Cassa Inc. to discuss his investment needs. He shares the following information with him: "My income as director at PSMX will be more than enough to cover all of my living expenses and save at least $70,000 annually, so I do not plan to withdraw funds from my portfolio. I would have preferred selling DMX for cash, but by accepting the restricted stock, the total sales proceeds were almost twice as much as in a cash sale. I want this wealth to last a long time as this portfolio will fund my retirement when I turn 60. I want a stable return of 8 - 10 % annually with moderate volatility." Jonathan drafts an investment policy statement for Danny with the following elements: A return objective of 8-10% A 9% standard deviation objective An appropriate time horizon No liquidity needs Jonathan considers the following investment options for Danny given in Exhibit 1. Exhibit 1: Investments available for Danny Name Return Standard deviation ABX aggressive FOF 15% 15% Shire Ltd. 10% 13% Delta Pharm. 7% 12%