Financial planning model for the Armed Forces of the Philippines Provident Trust Fund
Poquiz, Romeo D. V.
Moses, Douglas O.
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Recent deployments gave rise to twin problems for the Armed Forces of the Philippines Provident Trust Fund (AFPPTF). Firstly, the AFPPTF, though it has identified the type of assets in its planned portfolio, is not sure how to allocate the assets in the portfolio in order to optimize returns. Secondly, the AFPPTF has no visibility of expected returns in the future years, on which to base its decisions in determining the amount of yearly scholarship assistance. This thesis research aimed to solve these twin problems of the AFPPTF. The research involved two broad steps - data collection and model construction and analysis. Data collection was primarily through literature reviews, archival research, and interviews. The analysis involved simulation through the Monte Carlo method. The model was created using Microsoft Excel spreadsheet, where all the possible variables affecting future portfolio returns and fund balances were linked with the other variables through formulas and equations. These variables, such as initial investment, yearly scholarship and operating expenses, etc., were based on the various yearly cash flows of the AFPPTF. The portfolio returns and yearly fund balances, called "forecasts" in the model, were based on the probability distributions of the historical returns of the assets in the portfolio. Simulation runs, each run involving 5,000 trials, were undertaken to determine the expected portfolio returns and fund balances in a 20-year time horizon. Simulation was also used in determining the optimal asset allocation used in the model The model may be used by the management of AFPPTF in financial planning by varying certain variables, conducting simulation runs on each variation, creating and analyzing simulation results, and ultimately making decisions
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