Question: Financial Management ...

Financial Management

Constructing an Bond or Fixed Income Portfolio

A retirement portfolio for Mr. and Mrs. Green

Mr. and Mrs. Green have asked you to assist them with their investment portfolio. They have asked you to conduct an analysis and present it to them.

Part I

Mr. and Mrs. Green have just retired and have $500,000 that they would like invested in an income producing bond portfolio. They need the income to cover their expenses in retirement. Safety is important to the Greens. They want their funds invested in either Government bonds or corporate bonds that are A rated or better. The investment in international bonds, if any, should not be more than 10%.

a. Create a diversified portfolio for the Greens with a minimum of 10 bonds. Structure the interest payments of the bonds in the portfolio so that the quarterly income of the portfolio is reasonably balanced. Structure the bonds in a bond ladder with approximate maturities of 2, 4, 6, 8, & 10 years.

b. Calculate and include both the quarterly and the annual income of the portfolio for the first two years.

c. Prepare a letter to Mr. and Mrs. Green explaining what you have done, how you selected the bonds, what will be done when the bonds mature, and how a bond ladder works, and the advantages and disadvantages of the bond ladder strategy. Include schedules showing the makeup of the portfolio and the income to be received over the next two years.

Detail Pertaining to Bond List : Portafolio of Corporate Bonds rated AAA, low risk . For example

Company	Price (7/26/11)	Dividend Yield	Payout Ratio
Automatic Data Processing (NASDAQ:ADP)	53.18	2.70%	56%
Johnson & Johnson (NYSE:JNJ)	65.92	3.40%	44%
Microsoft (NASDAQ:MSFT)	28.08	2.40%	25%
Exxon Mobil (NYSE:XOM)	84.37	2.20%	28%
SPDR S&P 500 (NYSEARCA:SPY)	133.33	1.84%	not avail
iShares Barclays 7-10 Yr Treasury (NYSEARCA:IEF)	97.45	2.69%	not applic

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