Reference no: EM131514690

Don and Beth have come back to you five years later requesting for your help to develop a portfolio plan for them. At this point, they have changed jobs and finished paying their car loans and credit card debt. In this meeting they informed you that they now save $396.00 every fortnight. They have decided that they need to invest the money into a portfolio in order to achieve their retirement goal*. However, neither of them has had much experience with investment other than bank savings accounts. They feel that investing in the equity market could be risky; nonetheless, they do accept the need to take greater risk to earn better returns. Any plan suggested will need to demonstrate that the risk taken is commensurate with the return and risk to be minimized as much as possible. To facilitate better decision making, you have gathered the following information for further analysis: Table 1 Type of Investment Average return (%) Standard deviation Cash 3.0 n.a NZ fixed interest 5.5 n.a. Equity 11.0 12 NZSE Property 13.5 n.a. In the next meeting, i) You have to present a portfolio consists of all the asset classes in Table 1 to Don and Beth. ii) You are also required to tell them the factors that you have taken into consideration in determining the asset allocation. After listening to your presentation on (i) and (ii) iii) Don and Beth informed you that they are comfortable with a portfolio with standard deviation of 9%. If they preferred to have a portfolio consist of equity and fixed interest asset, assuming a risk-free rate of 3% they would like you to find out what are the proportion of their investment to be placed in equity and fixed interest asset respectively. *Additional information/assumptions for retirement needs: Amount required per fortnight after retirement: 50% of (2284.61 + 1200) =$1742.30 They plan to retire at 65 years old, life expectancy is 85 years old and I = 4%.