The company from last week (Sephora) has hired you to reorganize a department within their company based on your Executive Summary. (You may also choose a department of a company you are familiar with from previous experience.) Investigate the department more thoroughly and write a plan to improve the department. Recommend actions and next steps. Include a system to list and quantitatively score competing alternative solutions. One example may be a table that lists all of the recommended actions in one column, with additional ‘expected results’ and ‘grade’ columns. In the grade column you can assign a number to how you think each potential action may meet the expected result and include this summary in your plan.

Write an email to the company CEO briefly describing your findings in the department and your plan of action. Also, write a draft email that the CEO can send out to employees to gain their buy-in for the changes ahead. (Remember, you want the email brief and the receiver to read it.)

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Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank’s investments department, he’s well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $ 1 million of his inheritance to purchase 4 U.S. Treasury bonds:

1. An 8.55% 13-year bond that’s priced at $1,088.8 to yield 7.47%.
2. A 7.872%, 15-year bond that’s priced at $1025.90 to yield 7.58%.
3. A 20-year stripped Treasury (zero coupon) that’s priced at $ 199.28 to yield 8.23%.
4. A 24-year, 7.41% bond that’s priced at $950.72 to yield 7.87%.

Note that these bonds are semiannual compounding bonds.
a. Find the duration and the modified duration of each bond.
b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the 4 U.S. Treasury bonds.
c. Find the duration of the portfolio if Elliot puts $380,000 each into bonds 1 and 3 and $120,000 each into bonds 2 and 4.
d. Which portfolio—b or c— should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portfolio does he stand to make more in annual interest income? Which portfolio would you recommend, and why?

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