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Gary Grandview –A Continuing Case – Part 5
Investing Your Wealth: Asset Allocation
Gary has been watching the financial news network on cable, reading articles on how to invest in business magazines, and listening to a co-worker recount his plans to double the size of his portfolio in six months.
Gary is now convinced that his financial future lies in the stock market. His co-worker is predicting a windfall in technology stocks. He is planning to get married, and he wants to earn money fast. He believes that his investment in three different types of green technology stocks will give him adequate diversification with maximum growth potential.
Although he has heard that it might be a good idea to buy bonds in order to diversify his portfolio, Gary, as you may recall, thinks investments such as savings accounts are boring and their returns are too low.
The other day Gary read an article on how trading online with a margin account can increase his return, and he’s interested in your opinion. Gary admits that he has virtually no knowledge of investing or time to do research, but he thinks his co-worker’s “hot tips” is all he really needs.
Gary has heard about misleading financial statements issued by some firms, but he believes that even if companies misstate their financial conditions, this will not affect their stock prices. Gary would like to hear your advice.
Gary Grandview Part 5 Reading Segment Rev 3.2.2013 – SL
>BB- le> Grandview—A Continuing Case
ation
. Analyze the changing facts provided in Parts -4. Continue to assume the role of Gary’s advisor and provide your answers in a business like style and ton (*Excel Toolbar, Home Tab, Alignment section)
Drag the bottom line of the number row (far left column) down, or Insert a row while the curser is in Column A.
2 2 2 2 2 2 2 0 years old and single? Would the situation change if he were married?
2 a 1 b 1 &F
Gary Grandview – A Continuing Case – Part 6
Estate Planning
Gary tells you that he has revised his retirement plans. He would like to retire in 20 years instead of the original 25 years. His goal is to save $500,000 by that time. Gary still believes his technology stock will be all he needs for retirement.
Gary’s job offers several types of investment programs. As his advisor, you have informed him that he should take advantage of the employer’s matching funds program, stock purchase plan, and the available IRAs. You have mentioned retirement match: his employer will match retirement plan contributions up to $300.00 per month. Factoring the employer’s matching retirement benefit, Gary could possibly save $7,200 per year.
Gary is not sure where to begin when it comes to estate planning. Gary thinks all of this estate planning might be going overboard, and he is not convinced he needs to plan so much for the future right now. He wants to enjoy his life now and let Social Security take care of the rest of his needs when he is old. Gary is in great physical shape, and he thinks he has a lifetime to make a will.
Gary’s sister has two boys who are growing up fast. Gary’s sister mentioned that she is concerned about their future, and she asks Gary if he could help with a college fund. Gary decides that he would like to provide for his little nephews’ in the event of his death. On the way home Gary decides to look into starting an investment portfolio just for them.
Recently Gary is getting serious about his girlfriend, and they have started talking about getting married. Gary begins to think that she might be the one. Gary’s thoughts of marriage being to multiply: How will getting married affect all the plans he has made as a single guy? How will it affect the nephews’ education? How will he be able to provide a retirement for two instead of one?
Gary Grandview 6 Reading Segment 3.2.2013 Rev – SL >BB- Grandview—A Continuing Case
Estate Planning
. Analyze the changing facts provided in Parts -4. Continue to assume the role of Gary’s advisor and provide your answers in a business like style and ton years if he invests $ 0
0 per month at %
without the employer’s matching contribution? Will this amount be enough to meet his retirement needs? Explain briefly.
of an Annuity
1 20 , and years if invested at ? Gary has researched his family’s history. Most of the men have lived into their 0’s; therefore, Gary estimates he will be retired for approximately 30 years. Will he have enough in the fund to live on for the duration of his retirement years? Explain to Gary the different scenarios in simplest terms.
30 %
?
2 20 25 30 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 2 2 Amount to be Accumulated 2 2 2 25
Chapters 17 and 19 (Submit ONLY the answer sheet)
Problems
Point
Chapter 17: Investing in Mutual Funds
CH17.1.a Amount of Shares Purchased. Mary invested $8,530 in a mutual fund at a time when the price per share was $10. The fund has a load fee of $200. How many shares did she purchase?
2
CH17.1.b Amount of Shares Purchased. If Mary (CH17.1.a) had invested the same amount of money in a no-load fund with the same price per share, how many shares could she have purchased? 2
CH17.2 Expense Ratio. Mark owns a mutual fund with a NAV of $42.00 per share and expenses of $1.25 per share. What is the expense ratio for Mark’s mutual fund?
4
CH17.3.a. Estimating Returns. Mary later sells her shares in the mutual fund for $12 per share. What would her return be in Load Fund Return case (CH17.1.a)? 4
CH17.3.b. Estimating Returns. Mary later sells her shares in the mutual fund for $12 per share. What would her return be in No Load Fund Return case (CH17.1.b)? 4
CH17.4.a. Tax Consequences. Rena purchased 350 shares of a no-load stock mutual fund. During the year she received $4 per share in dividend distributions, $400 in long-term capital gain distributions, and capital gains of $2,200 when she sold the stock after owning it eight months. What are the tax consequences of Rena’s ownership of this stock fund? Rena is in a 35 percent marginal tax bracket. [Tax on Dividend Distribution] 4
CH17.4.b. Tax Consequences. From CH17.4.a. what are the tax consequences of Rena’s ownership of this stock fund? [Tax on Long Term Capital Gain] 4
CH17.4.c. Tax Consequences. From CH17.4.a. what are the tax consequences of Rena’s ownership of this stock fund? [Tax on Short Term Capital Gain] 4
Chapter 19: Retirement Planning
CH19.1.a. Retirement Funding. Barry has just become eligible for his employer-sponsored retirement plan. Barry is 35 and plans to retire at 65. Barry calculates that he can contribute $4,200 per year to his plan. Barry’s employer will match this amount. If Barry can earn a 7 percent return on his investment, how much will he have at retirement? 2
CH19.1.b. Retirement Funding. How much would Barry (from CH19.1.a.) have at retirement if he had started this plan at age 60? 2
CH19.1.c. Retirement Funding. How much would Barry (from CH19.1.a.) have if he could earn a 10 percent return on his investment beginning at age 35? 2
CH19.1.d. Retirement Funding. (from CH19.1.a.) Assuming an 8 percent return, how much would Barry have if he could invest an additional $300 per year that his employer would match beginning at age 35? (Amount at Retirement) 2
CH19.2.a. Retirement Funding. How much will Marie have in her retirement account in 20 years if her contribution is $8,300 per year and the annual return on the account is 7 percent? 2
CH19.2.b. Retirement Funding. (From Ch19.2.a.) How much of this amount represents interest? 2
CH19.3.a. Retirement Plan Decision. Thomas earns $55,000 per year. What retirement plan should Thomas consider under the following circumstances? (He works for a large private firm) 2
CH19.3.b. Retirement Plan Decision. (From Ch19.3.a.) (He works at a university) 2
CH19.3.c. Retirement Plan Decision. (From Ch19.3.a.) (He owns a small firm with employees) 2
CH19.4. Retirement Account Withdrawal. In need of extra cash, Troy and Lilly decide to withdraw $7,600 from their IRA. They are both 40 years old. They are in a 25-percent marginal tax bracket. What will be the tax consequences of this withdrawal? 4 Take Home Exam #4: Chapters 17 and 19 Page 1 of 4 All work must to be submitted on-line one half hour before class on the assignment due dates. Merely posting final answers is insufficient.
Last/Family Name:
First/Given Name:
RU ID:
Signature:
Formulae and Solutions
Final Answer Point DED Grade Chapter 17: Investing in Mutual Funds
CH17.1.a 2
CH17.1.b
2
CH17.2
4
CH17.3.a.
4
CH17.3.b.
4
CH17.4.a.
4
CH17.4.b.
4
CH17.4.c.
4 Chapter 19: Retirement Planning 2
CH19.1.b.
2
CH19.1.c.
2
CH19.1.d.
2
CH19.2.a.
2
CH19.2.b.
2 2 2 2
CH19.4.
4
Point Deducted
50
2
5
a
b
Name:
Date:
Name:
Gary
Part 5: Investing Your Wealth: Asset Allo
c
a.
Read Gary Grandview Part
4
1
e.
b.
Please make sure that WRAP TEXT and MERGE and CENTER are ON.
c.
Ensure your answers can be seen in the yellow highlighted text box. Need more space? Increase height of the text box.
a)
b)
d.
Ensure printed copies are readable. Print in Portrait.
e.
Save and upload the document in the Assignments Folder . Please print a copy for class.
Case Questions
Value of Points
Possible
Lost
1
Gary is seriously looking again at his investments. Comment on each of the following elements of Gary’s plan.
a)
Gary’s retirement investment portfolio consists of three types of green technology stocks. Advise Gary on his level of diversification.
2
b)
Comment of Gary’s view on bonds and not including them in his portfolio.
c. Comment on trading online.
d. Comment on margin trading.
e)
Comment on sources of information (“hot tips”).
2
2. Given Gary’s lack of knowledge of investing and limited time to learn or do research, what might be the best option for Gary to pursue and still get the benefit of the potential growth in the technology sector?
3
What two factors will influence Gary’s asset allocation?
4
Based on these factors, what might be a suitable sample portfolio for Gary at his current age and remaining single? (Use % of ___ )
2
5
How would your answer to the sample portfolio part of Question #4 be affected
if Gary were:
a
45 years old and single? Would the situation change if he were married?
b
6
6
Explain to Gary why a) misleading financial statements may be more common than he believes and b) why misleading financial statements can negatively affect a stock’s price.
(1 point each)
a 1
b 1
7
Prepare a written report on your three findings/recommendations to Gary.
(1 point each)
c 1
Total
25
Final Score
Sheet2
Sheet3
2
6
Name:
Date:
Name:
Gary
Part 6:
a.
Read Gary Grandview Part
4
1
e.
b.
Please make sure that WRAP TEXT and MERGE and CENTER are ON. (*Excel Toolbar, Home Tab, Alignment section)
c.
Ensure your answers can be seen in the yellow highlighted text box. Need more space? Increase height of the text box. a) Drag the bottom line of the number row (far left column) down, or b) Insert a row while inside Column A.
d.
Ensure printed copies are readable. Print in Portrait.
e.
Save and upload the document in the In Assignment Folder . Print a copy for class.
Case Questions
Value of Points
Possible
Lost
1
Gary wants to know how much will he have in
2
0
3
8
Future Value
Payment per year
Number of years
Annual interest rate
Future Value
$0.00
1
2
Gary decides that he needs to conduct more research. Gary wants to know much the employers matching program will provide at different lengths of time. How much will the fund accumulate in 20,
2
5
30
8%
7
Future Value of an Annuity
Payment per year 1
Number of years 20
25
Annual interest rate 8% 8% 8%
Future Value $0.00 $0.00 $0.00
2
3
How much will Gary be able to accumulate in his retirement fund using the employers matching fund program, if he can find investments that will increase the interest rate to
10
Future Value of an Annuity
Payment per year 2
Number of years 25 30
Annual interest rate 10% 10%
Future Value $0.00 $0.00
4
Gary decides that he needs to revise his earlier goals for his retirement fund. Gary now plans to have $1,000,000 in his retirement account. Use the table below to help Gary find out what will need to invest per month in a fund earning 8% per year to reach his a new goal of $1,000,000. Will Gary be able to afford any of these options in his budget?
20 Years
25 Years
30 Years
Amount to be Accumulated
Number of Years
Annual Interest Rate
Annual Deposit
Monthly Deposit
Yes/No
5
What impact could retiring after 25 years have on Gary’s current standard of living? How would it affect his standard of living if he were married?
6
Advise Gary on adding annuities to his retirement portfolio. Who sells annuities? Are there any disadvantages to investing in annuities?
2
7
What is an IRA? Are there different types? Are there advantages of one type
over the other? Give the two pros and two cons.
8
If Gary really wishes to provide for his nephews’ college education,
how can a ‘Will’ help him achieve that goal? What should it include?
Where should it be kept? What else should be kept with the Will?
4
9
Gary’s new goal is to prepare a college fund for his nephews. What kinds of investment programs are designed for this type of investment? Use the table below to show Gary according to the maximum amount he can invest per year and how many years will be needed to accumulate $40,000 in a Educational Fund earning 8% for his nephews?
EDU
Number of Years
Annual Interest Rate 8%
Annual Deposit $0.00
Monthly Deposit $0.00
10
Prepare a written report on your findings and recommendations to Gary.
25 0
Final Score
Sheet2
Sheet3
Chapters 17 and 19 (Submit ONLY the answer sheet)
CH19.1.a.
CH19.3.a.
CH19.3.b.
CH19.3.c.
