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Brm Investment Case

In: Business and Management

Submitted By kels215
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Executive Summary John Raymond is working on his 401K-retirement plan. He has all of the risks and returns for all of the assets in his investment classes. He assumes that all returns follow a normal distribution with the following means and standard deviations.

Investment Class | Mean | Standard Dev. | Fixed Income/Annuities | 8.31% | 0.60% | Cash | 7.73% | 0.80% | US Treasury Bonds | 8.80% | 5.00% | US Investment Corp Bonds | 9.33% | 7.00% | Foreign Government Bonds | 10.95% | 10.00% | Domestic Large Cap Stocks | 12.71% | 17.30% | International Equities | 14.02% | 19.00% | Domestic Mid Cap Stocks | 11.64% | 18.19% | Domestic Small Cap Stocks | 15.93% | 23.00% |

For each investment class we found the probability of a loss in the investment for a return of less than zero. We also found the probability of a return greater than 5%, between -5% and 5%, and lower than 15%. In finding these probabilities, we were able to find which investment classes were more profitable for John Raymond and the correlations of the different investment classes. We grouped the investment classes into two groups into compare the correlation. The first group consisted of: fixed income/annuities, US treasury bonds, US investment corporate bonds, and foreign government bonds. The second group consisted of: domestic large cap stocks, domestic mid cap stocks, domestic small cap stocks, and international equities.
Part A In using the Z-score transformation formula, we found the probability of a loss in each investment class.

Part…...

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