Question: Client 1 is 18 years old and single. Five years ago they received an inheritance of £500,000 held in trust by their parents until they turned 18

Students whose student number ends with the numbers 0 and 1.

Client 1 is 18 years old and single. Five years ago they received an inheritance of £500,000 held in trust by their parents until they turned 18. Currently the £500,000 is invested in triple A rated UK corporate bonds yielding 3.5% p.a. The client is about to start University to study on a 3 year Business and Accounting undergraduate degree. The client wants to use some of their inheritance to pay their university fees and living expenses. The client also wants to buy a small flat to live in while they study. After they graduate the client wants to start their own business and plans to use the bulk of their inheritance to do this. The client is a risk lover.

Students whose student number ends with the numbers 2 and 3.

Client 2 is 21 years old and has just graduated from University with an art degree. They have debts of £28,000 in the form of student loans. The client is single. The client has accepted a job as a trainee in a company that creates animation for films. They will earn £21,000 p.a. In five years’ time the client wants to become a self-employed artist, so they plan to buy a studio space where they can work. They currently live in rented accommodation. The client has received a gift from their parents of £300,000. The client is a risk lover.

Students whose student number ends with the numbers 4 and 5.

Client 3 is 38 years old and a partner in a law firm. They are married with one child aged 10. They earn £300,000 p.a. and have savings of £600,000 currently in a savings account earning 1.75% p.a. Their spouse does not work. They have a mortgage with 20 years, and a balance of £300,000, outstanding. They plan to pay for their child’s university fees and living expenses when the child is 18. The client wants to buy a narrowboat to pursue their hobby of sailing and nature watching. They also want to start planning for their retirement. The client is risk averse.

Students whose student number ends with the numbers 6 and 7.

Client 4 is a 55 year old chef and owns three successful restaurants which provide the client with an income of £90,000 p.a. The client has savings of £150,000 and owns their house with no mortgage outstanding. Their house is currently worth £250,000. The client is divorced and has two children aged 21 and 22. The client’s children are financially independent of their parents but have student loans outstanding from their time at university amounting to £52,000 in total. The client has recently developed some health problems that have made working difficult so they plan to retire and sell their restaurants which are currently valued at £2,000,000. The client plans to pay-off their children’s debt and buy one small flat for both their children to live in. The client wants to use the remaining money from the sale of their restaurants to fund their retirement and to pursue their hobby of traveling. The client is a risk lover.

Students whose student number ends with the numbers 8 and 9.

Client 5 is 60 years old and in very good health. They are unmarried, have no children and plan to retire soon. After they retire they plan to do voluntary work at a charity that provides medical care to people who have experienced natural disasters all over the world. They work as a nurse and currently earn £45,000 p.a. They have savings of £40,000 and own their own flat which is currently valued at £150,000. They have recently won a lottery and received £1,500,000. They would like to give their two nephews a lump sum of £150,000 each as a gift. The client would like to buy a larger house and wants to invest their remaining money to fund their retirement and support their charity work. The client is risk averse.

Assignment question

At the beginning of the module you were allocated fictional client(s). In the tutorials, over the course of the module, you will be asked to create an Investment Policy Statement and a portfolio of investment instruments for your client. Based upon the client you have been allocated, and in the context of the current economic environment and the Covid-19 pandemic, answer the following questions.

Assume that you cannot trade fractional shares and that you may not short sell any assets.

(a) Provide a 200 word summary of the Investment Policy Statement you have created for your client. You must include and explain your client(s) unique need.

(10 marks)

(b) Provide a table listing all of the investment instruments that you have chosen to include in the final portfolio for your client. Demonstrate that purchasing these investment instruments has not cost more than the total amount of money the client had available for investment. Assume that you cannot buy fractional shares (i.e. you can only buy whole shares and not half a share).

(10 marks)

(c) (i) Explain which equities you have chosen to include in your client(s) portfolio and explain why you have chosen to include these companies.

(25 marks)

(ii) Detail each of the investment instruments, other than equities, that you have included in your client’s portfolio. Explain why you have included them and how and why you think these investments are suitable for your client(s).

Hint: You will need to explain how the investments you have chosen meet the needs of the client outlined in the Investment Policy Statement.

(25 marks)

(iii) Using CAPM, calculate the beta and expected return of your portfolio. How do you think that your portfolio will perform compared to the market? Provide your calculations and assumptions.

(20 marks)

(iv) Explain the limitations of the portfolio you have created.

(10 marks)

(Total 100 marks)