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Financial Planning Assignment 2 Case 1 and 2




Question;Financial Planning Assignment 2 Case Application 1Nonfinancial assets-capital expendituresUnlike Richard, Monica remained very concerned about their financial future. Specifically, shewas fearful that the couple would not have enough money to retire comfortably as they hadexpected. She asked whether she should postpone or eliminate one improvement on her house.She estimated that a new boiler with a useful life of eight years would cost $20,000 and wouldsave $4,000 a year in heating bills. Monica wanted to know whether they should sell their homenow and invest the proceeds. She estimated that marketable securities would provide a return of5 percent after taxes. They thought the value of the house, now worth $300,000, would increaseby 6 percent a year. A rental in a comparable apartment would cost $2,200 a month. Assume forpurpose of this section only that Richard and Monicas marginal tax bracket is 30 percent andother statistics include:Annual maintenance$3,000Property taxes$5,000Insurance$1,500Case Application Questions:1. Do we know yet whether Monicas fears about retirement are justified? Do you have anypreliminary opinion about this?2. Do you think she should consider a new boiler now?3. Complete the boiler problem and give your response.4. Calculate the projected return on the house for the next year and give your recommendations.*********************************************Financial Planning Assignment 2Case Application 2Financial InvestmentsWhen it came to investments, Richard and Monica could agree on only one thing-that theywould have a tough time reaching a decision on asset allocations and individual investments.Previously, Monica had deferred to Richard on investment matters. Given Richards large recentinvestment loss, however, Monica was much more forceful in expressing her feelings. Shethought that a 40 percent stock, 60 percent bon allocation fit, particularly given the lower level ofaccumulated wealth they now had. Richard, on the other hand, wanted 100 percent of the fundsplaced in stocks. He asked if it wasnt true that stocks always did better than bonds over thelonger term. He said that to reach their goals, they needed some aggressive investments.Monica interrupted, saying it was just that stocks-had-no-long-term-risk mentality Richard hadthat led to their investment losses. Richard then volunteered that there was an oil stock, EnergyGulch, a friend of his recommended that couldnt lose. He wanted to place 20 percent of hismoney in it.Case Application Questions:1. What do you think of the Richard and Monica argument?2. Using the asset allocation alternatives listed in this chapter as a guide, what should theirasset allocation be? Why?3. What do you think of the Energy Gulch idea? Why?4. Select one mutual fund you find attractive and give the reasons why you chose it.


Paper#48285 | Written in 18-Jul-2015

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