MBA 6400: Case Study #1
Short-term investment returns: money market instruments.
You are an analyst in the insurance industry and are tasked with ensuring that there is a balance of
available funds to use to for customer payments in the event of a large hurricane disaster during the
Atlantic hurricane season of June 1 – November 30. You need to ensure that the funds earn a safe
return for the company as they are currently not known to be needed for insurance payouts but they
still need to remain liquid. You are tasked with researching and identifying short-term money market
investment options for your firm.
The Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term
investment options for the upcoming year. You are to provide recommendations and a report
illustrating your optimal analysis for investing $3 million of cash in a combination of new T-Bills, CDs and
Money Market accounts. This money will be invested in multiple of these securities for an entire year.
For 2021 Fall I block, use a start date of October 1, 2021, a hurricane season of October 1, 2021 –
November 30, 2021, an off-season of December 1, 2021 – May 30, 2021, a second hurricane season of
June 1, 2022 – September 30, 2022, and an end date of September 30, 2022 (same as the end of the
second hurricane season).
See the Federal Reserve FOMC Meeting Projections for the Dot Plot at Figure 2 on page 4 of
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210616.pdf. See if the interest
rate environment is one where future rates are expected to increase, decrease or stay the same. Explain
why you chose increase/decrease/stay the same.
Explain which lengths of investments are better for that projected direction.
For a primer on the dot-plot, see https://www.investopedia.com/dot-plot-4581755
Parameters for the research and analysis report are as follows:
1. Investments selections are short-term money-market (defined as one year or less).
a. You will have investments for the entire year so when you choose an investment (4-
week T-Bill, 1-month CD, etc.), you need to invest the principal and interest in at least
one additional investment to get to the end of the year. For 2021 Spring Block I, there is
a pre-hurricane season period, a during-hurricane season period, and a post-hurricane
season period so you should consider these as different investment criteria.
b. If you decide to “cash-out,” put that money into a money market account for the rest of
the year. Do not just abandon the money when an investment ends.
2. Three short-term instrument types are to be recommended, although you can use multiple
simultaneous ones of each of these.
You must use all of these, and only these:
Treasury Bills purchased from the U.S. Treasury
(https://www.treasurydirect.gov/instit/instit.htm),
https://www.treasurydirect.gov/indiv/research/indepth/tbills/res_tbill.htm
ii New CDs purchased from the issuing bank and
iii Money market accounts.
b. No more than 35% of the portfolio can be initially invested in any individual security
type. T-Bills and CDs and money market accounts must be used.
c. When multiple T-Bills are used, they must be of different lengths (i.e., 4-Week, 8-Week,
13-Week, 26-Week). Do not use 52-week T-Bills as they cannot meet requirement 1a
above.
d. Purchase new CDs. Do not look at the secondary market for CDs that have already been
issued at some time in the past.
e. When multiple CDs are used, they must have different maturity terms (i.e., 3-month, 6-
month) Do not use 9-month or 12-month CDs as they cannot meet requirement 1a
above.
f. If the CD states the compounding period, use it. If it does not, use monthly as the
compounding period.
g. The Money Market account will be invested for a full year (365 days).
h. If the Money Market Account states the compounding period, use it. If it does not, use
daily as the compounding period.
i. Do not use any other type of investment.
j. Do not use your personal finance account (i.e., Fidelity) to get any information for this
assignment; use only the Treasury for T-Bills (see above link) and only the issuing bank
to get new CDs or open a money market account.
3. A recommendation on the optimal allocation of $3 million across the investment portfolio is
required. Define optimal as you see it.
4. Current (as of the date of this assignment) rates and investments are to be used. Reinvestments
will also use current rates.
The analysis report to be presented to the CFO is to include:
1. Your concise statement and recommendation of the specific short-term investment options that
meets the firm’s criteria.
2. A detailed summary of the investment asset and the parameters you will use in which to base
your recommendation.
3. A detailed descriiption 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 investment.
4. Source identifier for all investment selections:
a. Example: website URL.
5. A spreadsheet (embedded into the report and submitted separately) illustrating the following:
a. Asset category/classification.
b. Specific money market instrument identifier (i.e., U.S. Treasury CUSIP for T-Bills)
c. Present Value
d. Interest Rate
e. Price per $100 (for T-Bills)
f. Term/Length
g. Compounding frequency (for CDs and money market accounts)
h. Future Value
i. Profit
j. Website URL
k. Other information as appropriate
6. Total return and %return for the investment portfolio.
7. 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.
1. Submit a Word file.
2. Analysis must be between 3 to 5 pages maximum.
3. Submit an Excel file separately
