case 31 - presentation - final version
TRANSCRIPT
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FIN 650
Case 31
Hai-Thao Tran
Meharvan Singh
Nadine Alam
Ray Alam
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Summary of Facts
Sigma Sigma is a fraternity that charges membership fees and yearly
dues.
The purpose of the fees is to cover fraternity expenses
ees !aid exceeded expenses and there "as a need to invest the
excess
#xecutive committee did not have time or experience to manage large
accountsNancy $ait is elected to be the fraternity treasurer and she hired
Harriman Ross as the fraternity %nvestment irm
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Summary of Facts
The account performance did not perform "ell compared to the
industry
Nancy &ecided to Audit the firm's "or( and see if they are doing a
good )ob
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Investment Policy
* Excess membership fees
* 75% stocks
* 25% fixed income securities !" #rade
* $5% variation
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Investment Policy
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Does it appear that Harriman Ross and Associates is
following the investment policy established for the
fund?
Policy outline
- +ombination of common stoc(s, preferred stoc(s, corporate bonds,
and S government securities
- und should normally contain ratio of 75% common stocks to 25%
fixed income securities.
- NT#/ 0123 to -123 variation in above allocation percentages
permitted if the fund manager sees fit.
-+orporate bonds must have minimum S4! rating of 5A'.
- +ommon stoc(s must be of ‘investment grade’ 6uality.
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* %nordinate sums of money ta(en out of common stoc(s and allocated tomoney mar(et funds
* Minimum amount that should be in common stoc(s/ 782 9 12:3 ; ? 1@8, more than ?23 invested in money-mar(etinstruments
* Stoc(s selected are generally of established companies and appear to be
5investment grade'.
* No information on the 6uality of debt
&' (he fund advisor did not follo) the investment policy established for
the fund*
Does it appear that Harriman Ross and Associates is
following the investment policy established for the
fund?
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+uarterly ,han#e in value of the
portfolio
(he -uarterly chan#e
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(hree +uarter ,han#e
(hree.-uarter chan#e from /ecember 01 $34
to September 01 $347
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6ensens portfolio evaluation
Quarter Ending S&P 500 Return
(Table 31.3)
T-Bond Return
(Table 31.4)Portfolio Beta Kr Ke Jensens !l"#a
1$%30%1&'( 5.5!" #.$#" #.%& 5.71% 1.29% -4.42%
3%31%1&') '#.&'(" #.#" #.%& 21.83% -7.07% -28.90%
(%30%1&') (.!)(" #.!" #.%& 5.07% 10.03% 4.96%
&%$&%1&') 5.&!$" '.%" 1.04 5.53% 4.15% -1.38%
Annuali*ed Return 3'.15* '.41* -$.4*
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8o) to include cash bonds and
money market instruments
9sin# ,apital :arket ;ine
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>ecommendation
* The current endo"ment fund advisor did not perform a high 6uality
)ob 4 violated investment policy statement
* Sigma Sigma Sigma raternity should replace Harriman Ross and
Associates
* Reconstruct the investment policy statement