case profile

Topics: Investment, Finance, Mutual fund Pages: 1 (266 words) Published: June 19, 2014
Case Profile/Summary
J.D Williams is an investment advisory firm that manages more than $120 million in fund for its clients. The firm uses an asset allocation model for investment recommendations of three funds: growth fund, income fund, and money market fund. General guidelines that must be followed in growth fund are between 20% and 40% of total portfolio value. The other two funds are between 20% and 50%. At least 30% of total portfolio value must be in money market fund. Williams just contracted with a new client who has $800,000 to invest. Williams assigned a maximum risk index of 0.05 for the client. The firm’s risk indicators show the risk of the growth fund at 0.10, the income fund at 0.07, and the money market fund at 0.01. Furthermore, Williams is forecasting annual yields of 18% for the growth fund, 12.5% for the income fund, and 7.5% for money market fund. Williams wants to find the optimal investment amount from $800,000 to invest among the three funds.

4. Looking at the risk of 0.10 and 0.07 of growth fund and income fund, the client may choose a less aggressive strategy approach by limiting the growth fund’s investment amount to equal, but not exceed the amount invested in the income fund. This change in investment strategy would induce a lower annual yield of $85,067, than the projected annual return of $94,133 by the original risky recommendation. Due to annual yield of 18% growth fund and 12.5% income fund, the growth fund will give higher return in comparison to income fund. But the growth fund contains higher risk (0.10). In conclusion, more amount should be invested in growth fund if the goal is more annual yield.
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