Imagine you manage money for a client's kid college fund. The kid will need $40,000/year for 4 years and he will start college in exactly 7 years. Your client can invest 120,000 now.

Only investments in US equity and fixed income are permitted, and because of transactions costs you can only hold 5 different securities in your portfolio (you may hold mutual funds and ETFs).

1) Describe how you can set up your client's asset allocation and how you can solve it (however, do NOT solve it). Make sure you cover assumptions about investment opportunities, utility functions, etc.

2) Describe relevant enterprise risks for your case.

3) Describe how you would manage the financial risk of your portfolio.