Friday, July 15, 2011

Suppose your boss says her goals are to meet most financial emergencies and fund her living (cont)?

1. Suppose your boss says her goals are to meet most financial emergencies and fund her living arrangements. She owns her condo and vehicle, she is not employed, and she has $450,000 invested as follows: Stock mutual funds (growth and mid-cap) ---------------------$405,000 Bond mutual funds (high-grade corporate and U.S. Treasury) ----$43,000 Savings accounts--------------------------------… What specific suggestions, given this limited information, should you give to help her meet her goals? 2. Which of the following bonds should an assume an informed investor, seeking the highest possible return and lowest risk, choose? Assume risk properties of both bonds are about the same. Use duration to arrive at your answer, and assume annual compounding and an 8%, discount rate. Explain why duration is the preferred method to select bonds and how you arrived at your answer. Bond A will pay $200 every year beginning one year from now and will mature in three years from now paying $10,000. Bond B will pay $250 every year-beginning one year from now and will mature in four years from now paying $1,000. 3. Suppose you've studied a corporation for a long time, and you notice that sales have increased in the most recent year. However, the current ratio has declined, and the ratio of earnings to sales has also declined. What conclusions do you draw from these findings? 4. Give an example of two kinds of assets and an allocation proportion that would be part of a portfolio owned by a 25-year-old investor with goals for funding emergencies and saving for retirement. The investor's risk tolerance is high.

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