a.
To determine:
To develop an investment policy statement for a pension fund described as a mature defined benefit plan with the workforce having average age of 54 years, no unfunded pension liabilities and wage cost increase
Introduction:
An investment policy statement (IPS) is defined as a document drafted for a
a.

Answer to Problem 1PS
The objectives and constraints related to pension fund are mentioned.
Explanation of Solution
Given Information:
Given that a pension fund described as a mature defined benefit plan with the workforce having average age of 54 years, no unfunded pension liabilities and wage cost increase forecast at 5% annually.
In defined benefit plan, investor receives an assured pension amount irrespective of the return that is generated by the pension fund. In this kind of retirement plan, the total value of pension amount or the retirement benefit is recognized in advance.
The two major objectives of pension fund are to increase its return requirements and risk tolerance. If the pension fund's actual return exceeds the assumed actuarial return, the shareholders will reap profits. The risk tolerance level of the pension fund depends on proximity of payouts.
Constraints usually co-relate with investor circumstances. These circumstances include liquidity, investment horizon, regulations and tax consideration. For pension fund, if the pension fund is young, the liquidity should be low and vice versa. Investment horizon should be long and pension fund is not liable to any tax rates.
b.
To determine:
To develop an investment policy statement for a university endowment fund described as conservative, with investment return being utilized along with gifts and donations to help meet annual expenses. The spending rate is 5% per year and inflation in costs is expected at 3% annually.
Introduction:
An investment policy statement (IPS) is a document drafted for a portfolio manager by his client that outlines general rules for investment for the manager. This statement gives the broad investment objectives and constraints of a customer and illustrates the strategies to be formulated by the manager for meeting these objectives.
b.

Answer to Problem 1PS
The objectives and constraints related to university endowment fund are mentioned.
Explanation of Solution
Given Information:
Given that a university endowment fund described as conservative, with investment return being utilized along with gifts and donations to help meet annual expenses. The spending rate is 5% per year and inflation in costs is expected at 3% annually.
An endowment fund is usually created by a foundation. The foundation makes withdrawals from the capital invested in the endowment fund. Such capital is used by the University for its general or operating needs. They are normally funded by donations.
The two major objectives of endowment fund are to determine its return requirements and risk tolerance. The return requirement is henceforth determined by current income needs and need for assets growth to maintain the real value. As given in the question itself, risk tolerance is generally conservative.
Constraints usually co-relate with investor circumstances. These circumstances include liquidity, investment horizon, regulations and tax consideration. Endowment funds require low level of liquidity and long time horizon with no rate of tax applicable.
c.
To determine:
To develop an investment policy statement for a life insurance company described as specializing in
Introduction:
An investment policy statement (IPS) is a document drafted for a portfolio manager by his client that outlines general rules for investment for the manager. This statement gives the broad investment objectives and constraints of a customer and illustrates the strategies to be formulated by the manager for meeting these objectives.
c.

Answer to Problem 1PS
The objectives and constraints of a life insurance company described as specializing in
Explanation of Solution
Given Information:
Given that a life insurance company described as specializing in annuities, policy premium rates are based on a minimum annual accumulated rate of 7% in the first year of policy and a 4% minimum annual accumulation rate in the next five years.
A life insurance company invests to hedge their liabilities, which are defined by their own policy.
The two major objectives of insurance company are to determine its return requirements and risk tolerance. The return requirement should exceed new money rate by sufficient margin to meet the expenses and profits. Also for insurance company, actuarial rates are necessary to be determined. As given in the question itself, risk tolerance is generally conservative.
Constraints usually co-relate with investor circumstances. These circumstances include liquidity, investment horizon, regulations and tax consideration. Life insurance requires low level of liquidity and long time horizon with the rate of tax applicable.
Want to see more full solutions like this?
Chapter 22 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
- On May 3, 2020, Leven Corporation negotiated a short-term loan of $840,000. The loan is due October 1, 2020, and carries a 6.60% interest rate. Use ordinary interest to calculate the interest. What is the total amount Leven would pay on the maturity date? (Use Days in a year table.)arrow_forwardNolan Walker decided to buy a used snowmobile since his credit union was offering such low interest rates. He borrowed $4,300 at 3.75% on December 26, 2021, and paid it off February 21, 2023. How much did he pay in interest? (Assume ordinary interest and no leap year.) (Use Days in a year table.)arrow_forwardAnswer finance problem with correct given values do not assume any values. and no chatgptarrow_forward
- this is finance probarrow_forwardFinance prarrow_forwardWhat is a problem statement outline? Could you please give seome examples? What are the research questions and methodology? How do they work, please some examples? What is a research framework outline? Please give some examples. What is a Final Research Concept? Please give some example.arrow_forward
- Skip Stephens is trying to decide whether it would be wise to consolidate his debt by borrowing funds from Syndicated Lending, a firm that he doesn’t know much about. Syndicated is an Internet lender that doesn’t post much information about the costs of the loans it offers. Some of the additional information Skip has gathered from various sources suggests the Syndicated might use such unethical practices as “bait and switch” to attract customers. Discussion questions: Is there an ethical problem? If so, what is it? What are the implications if Skip borrows from Syndicated? Should Skip borrow from Syndicated?arrow_forward9-15arrow_forward9-16arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education





