Question

1- congratulations!! You have been appointed as the new Treasurer of the SFU Investment Company. Your first assignment is to present to the Board of Directors a recommendation as to the investment of an estimated $10,000,000 in Free Cash Flow . 2-Given future uncertainty regarding the economic environment, your recommendation should include a mix of short term (Money Market) and long term (Capital Market) investments. There are no restrictions on the types of investments to include in your recommendations. Select from current market offerings as of 1/1/2018.

Answer 1

The investment of $10,000,000 should be done in both money market as well as capital market instruments. There has to be a balance between the investment in money market and capital market instruments as the company will have to maintain a balance between the risk that they undertake in the investment and the return that they earn. So it can be invested as follows:

50 percent of the amount can be invested in the money market instruments and the remaining 50 percent can be invested in the capital market instruments. The money market instruments are Treasury bills, Certificates of deposit, Commercial Paper etc. The capital market instruments are stocks, bonds, foreign exchange currency etc. The 50:50 balance in the investment will keep the company in a safe position. This way neither the risk will be too high nor will the return be too low.