MBA 6400 Wilmington University Week 3 Recommended Short Term Investments Case Study

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Economics

MBA 6400

Wilmington University

MBA

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MBA 6400 Case Study #1 Short-term investment returns: money market instruments Part of your responsibilities as a junior financial analyst is researching and identifying potential shortterm liquid investment options for your firm. These investment vehicles are at times used by the firm during periods when their cash inflows exceed projections. The firm, at times, uses excess cash to purchase short-term debt instruments providing a low, but safe marginal return on invested capital. Your Director, who reports to the firm’s Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term investment options for the upcoming year. The Director has asked for recommendations and a report illustrating your optimal analysis for investing $2.5m of excess cash. Current background info: We have a potential impending compound money market problem: The U.S. is issuing more debt, in part due to the recent tax cuts. Simultaneously, the Fed, China, Japan and to a lesser degree Russia have been reducing their holdings of U.S. Debt. Therefore, if the U.S. Treasury Department can’t get entities to their positions holding U.S. debt, then the pressure to increase interest rates to make newly issued securities attractive increases. Increased interest rates at the Treasury means securities prices fall with cascading impacts. Therefore, the current interest rate environment is one where rates are expected to increase. Parameters for the research and analysis report are as follows: 1. Investments selections are primarily short term (one year or less), but will consider U.S. Treasury Bills of shorter duration as well as TIPS. 2. A minimum of 3 short term debt money market security types are to be recommended. They may include Federal money market bills, U.S. Savings Bonds, CDs, U.S. Treasury Notes, Treasury Bills, and TIPS. a. Note: money market investments of the range of two to five years are acceptable. b. However, no more than 40% of the portfolio can be invested in a security of with duration of greater than 12 months. 3. A recommendation on the optimal allocation of $2.5 m across the investment portfolio is required. 4. Current (as of the date of this assignment) rates and investments are to be used. The analysis report to be presented to the Director is to include: 1. Your concise statement and recommendation of the specific short-term investment options that meets the firm’s criteria. Followed by: 2. A detailed summary of the investment asset and the parameters you will use in which to base your recommendation. 3. A detailed description of the upside and downside risk of each investment. The latter is of particular importance as the firm may decide to manage excess cash in one or more vehicles for longer than one year. 4. Source identifier for all investment selections 5. 6. 7. 8. 9. a. Example: website URL A spreadsheet (embedded into the report) illustrating the following: a. Asset category/classification b. Specific money market instrument identifier i. Example: U.S. Treasury CUSIP EAR for each investment YTM for each investment a. If held to maturity b. If sold at the end of 12 months Total return for investment portfolio if held to maturity Spreadsheet model is to include all cell-based formulas for all calculations Your conclusion is to summarize the recommendation made in item #1 above Format for report. Your report must: 1. 2. 3. 4. Be presented in Word file format Analysis must be between 3 to 5 pages maximum, including spreadsheet analysis Excel spreadsheet is embedded into the Word file Submit Excel file separately
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A Report on Recommended Short-term Investments for Company Surplus Cash Outline
Student's Name
Institutional Affiliation
Course Name: Course Code
Professor’s Name
Due Date:

A Report on Recommended Short-term Investments for Company Surplus Cash Outline


Introduction



Findings



Certificates Of Deposit



Treasury Bills



Treasury Notes



Recommendations



References


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A Report on Recommended Short-term Investments for Company Surplus Cash
Student's Name
Institutional Affiliation
Course Name: Course Code
Professor’s Name
Due Date:

2

A Report On Recommended Short-Term Investments For Company Surplus Cash
Introduction
Short-term investment options are those investment opportunities that firms and
organizations do venture into for convenient liquidity preservation purposes, while also earning
some marginal returns on excess cash resources. These investments are short-lived as they
normally have a maturity period of less than a year, or at most two years. Some of this short term
investment that a firm can venture into includes Treasury Notes, Treasury Bills, and Savings
Bonds. This report takes a keener look at the types of short term investment options available,
the references, and the recommendations about them.
The information in this report has been sourced from different areas which include
government sources, short term investment options websites, secondary sources such as books,
and the Non-Governmental Organisation websites.
Findings
Certificates Of Deposit
Certificates of deposit act as savings accounts that hold a fixed amount of money for a
fixed period of time such as six months, one year, or even five years. This in exchange, the
issuing bank normally pays an interest. When someone or an entity cashes in or redeems their
certificates of deposit, they receive the money they originally invested plus the interest that could
have accrued during the investment period (Heller & Schreiber, 2019). Certificates of deposit are
always considered to be one of the safest ways to save. With the certificates of deposit, the
disclosure statement should outline the interest rate on the certificates of deposit and say if the

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rate is either fixed or variable. It also should state when the bank pays interest on the certificate
of deposit for instance monthly or semi-annually, and whether the interest payment will be made
by check or by an electronic transfer of funds. The maturity date should be clearly stated, as
should any penalties for the early withdrawal of the money in the account. The risk with a
certificate of deposit is the risk that inflation will...


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