W5: Case Study - Corporate Financial Mgmt

Corporate Finance Management

Jessica Trundle

Dr. Debra Touhey

Upper Iowa University

1/30/2021

The American economy is one of the most stable and is also doing so well in terms of growth. It is important to look into the different factors before making the corporate financial decision in the United States. The three areas of investment presented in the scenario are U.S. equities, treasury bonds, and cash. Before the decision to allocate the $ 1,000,000 is made, it is important to assess the returns and the policies under which the specific asset operates.

The asset that needs to be given the larger percentage is the U.S. equities, which is the stock in the country's companies. Approximately 50% of the allocation should be directed on this asset because the return, in this case, is dependent significantly on the industry performance. Most of the United States companies are operating on profit, which keeps on increasing based on different factors. Therefore, one should ensure that the U.S. equities bought are from a company that gets reasonable income in terms of profit, which will ensure the returns on the allocation or the investment is favorable. Durham et al., 2020).

The next asset that needs to be given significant consideration in the allocation process is the Treasury bonds. The treasury bonds get to mature between six months and one year. This means the investment used in this area will earn a substantial interest at the end of the year, which will also be lucrative to the investor. The U.S. Treasury bonds are more predictable as the government is obliged to pay regardless of the year's business performance. Out of the allocated amount, the investment that should be directed on the treasury bond should be approximately 30% of the $1,000,000 (Zaremba , et al., 2019).

The remaining money should be held 9n cash on the optimistic motive that an investment idea may come up which will need the individual to invest in. The U.S. economy seems favorable when it comes to equities and Treasury bonds; therefore, they should be given priority in the investment process of the 12 months.

References

Durham, J. B. (2020). U.S. Treasury Bond Betas: 1961–2019. The Journal of Fixed Income, 29(4), 20-47.

Zaremba, A., Kambouris, G. D., & Karathanasopoulos, A. (2019). Two centuries of global financial market integration: Equities, government bonds, treasury bills, and currencies. Economics Letters, 182, 26-29.