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Portfolio Management

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Assume that you are a portfolio manager for a large insurance company.

Portfolio Manager Scenario

The majority of the money you manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in bonds of a large corporation and have just received a call from the company's president explaining that it is unable to meet its current interest obligations because of deteriorating business operations related to increased international competition. The president has a recovery plan that will take at least two years. During that time, the company will not be able to pay interest on the bonds and, she admits, if the plan does not work, bondholders will probably lose more than half their money. As a creditor, you can force the company into immediate bankruptcy and probably get back at least 90% of the bondholders' money. You also know that your decision will cause at least 10,000 people to lose their jobs if the company ceases operations.

Needed for help:
Explain which option you would choose and why you chose that option.

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Solution Summary

The majority of the money you manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in bonds of a large corporation and have just received a call from the company's president explaining that it is unable to meet its current interest obligations because of deteriorating business operations related to increased international competition.

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I will chose the option of forcing the company into immediate bankruptcy because as a fund manager, I am responsible for the security of my client's investments and need to take necessary steps to protect ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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