Case Problem 1.2 Preparing Carolyn Bowen's Investment Plan
Questions
a. Assume that Carolyn places currently available funds in the savings account. Determine the amount of money Carolyn will have available at retirement once she sells her house if she retires at (1) age 62 and (2) age 65.
b. Using the results from item a, determine the level of annual income that will be provided to Carolyn through purchase of an annuity at (1) age 62 and (2) age 65.
c. With the results found in the preceding questions, determine the total annual retirement income Carolyn will have if she retires at (1) age 62 and (2) age 65.
d. From your findings, do you think Carolyn will be able to achieve her long-run financial goal by retiring at (1) age 62 or (2) age 65? Explain.
e. Evaluate Carolyn's investment plan in terms of her use of a savings account and an annuity rather than other investments. Comment on the risk and return characteristics of her plan. What recommendations might you offer Carolyn? Be specific.
Case Problem 2.1 Dara's Dilemma: What to Buy?
Questions
a. Evaluate each of these alternatives. On the basis of the limited information presented, recommend the one you feel is best.
b. If Casinos International's stock price rises to $60, what will happen under alternatives 2 and 3? Evaluate the pros and cons of these outcomes.
c. If the stock price drops to $45, what will happen under alternatives 2 and 3? Evaluate the pros and cons of these outcomes.
Case Problem 2.2 Ravi Dumar's High-Flying Margin Account
Questions
a. Discuss the concept of pyramiding as it applies to this investment situation.
b. What is the present margin position (in percent) of Ravi's account?
c. Ravi buys the 1,000 shares of RS through his margin account (bear in mind that this is a $20,000 transaction).
1. What will the margin position of the account be after the RS transaction if Ravi follows the prevailing initial margin (50%) and uses $10,000 of his money to buy the stock?
2. What if he uses only $2,500 equity and obtains a margin loan for the balance ($17,500)?
3. How do you explain the fact that the stock can be purchased with only 12.5% margin when the prevailing initial margin requirement is 50%?
d. Assume that Ravi buys 1,000 shares of RS stock at $20 per share with a minimum cash investment of $2,500 and that the stock does take off and its price rises to $40 per share in one year.
1. What is the return on invested capital for this transaction?
2. What return would Ravi have earned if he had bought the stock without margin-that is, if he had used all his own money?
e. What do you think of Ravi's idea to pyramid? What are the risks and rewards of this strategy?
Case Problem 3.1 The Perezes' Good Fortune
Questions
a. Explain what role the Wall Street Journal and/or Barron's might play in meeting Angel's needs. What other general sources of economic and current event information would you recommend to Angel? Explain.
b. How might Angel be able to use the services of Standard & Poor's Corporation, Mergent, and theValue Line Investment Survey to learn about the securities in the portfolio? Indicate which, if any, of these services you would recommend, and why.
c. Recommend some specific online investment information sources and tools to help Angel and Marie manage their investments.
d. Explain to Angel the need to find a good stockbroker and the role the stockbroker could play in providing information and advice. Should he consider hiring a financial advisor to manage the portfolio?
e. Give Angel a summary prescription for obtaining information and advice that will help to ensure the preservation and growth of the family's newfound wealth.
Case Problem 12.1 Reverend Mark Thomas Ponders Mutual Funds
Questions
a. In light of Mark's long-term investment goals, do you think mutual funds are an appropriate investment vehicle for him?
b. Do you think he should use his $15,000 savings to start a mutual fund investment program?
c. What type of mutual fund investment program would you set up for the reverend? Include in your answer some discussion of the types of funds you would consider, the investment objectives you would set, and any investment services (e.g., withdrawal plans) you would seek. Would taxes be an important consideration in your investment advice? Explain.
Attachment:- Case-Problems.rar