The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is exactly when they need the funds for college expenses. Dave and Sharon notice that some highly rated municipal bonds offer a coupon rate of 2%, while some highly rated corporate bonds offer a coupon rate of 4%. The Sampsons could purchase either type of bond at its par value. The income from the corporate bonds would be subject to tax at their marginal rate of 25%. The income on the municipal bonds would not be subject to federal income tax. Dave and Sharon are looking to you for advice on whether bonds are a sound investment and, if so, what type of bond they should purchase. Go to the worksheets at the end of this chapter to continue this case. If the Sampsons should purchase bonds, what maturities should they consider, keeping in mind their investment goal?
> RST business entity reported the following items during the current year: Dividends from 25%-owned domestic corporation…………………………$ 19,000 Municipal bond interest received…………………………………………………….18,000 Corporate bond interest received……………………………………………………29,
> Cara, Bob, and Steve want to begin a business on January 1, 2018. The individuals are considering three business forms—C corporation, partnership, and S corporation. • Cara has investment land with a $36,000 adjusted basis and a $50,000 FMV that she
> Tom is a 55% general partner in the RST Partnership. Tom wants to retire, and the other two partners, Stacy and Rich, want to continue the partnership business. They agree that the partnership will liquidate Tom’s interest in the partnership by paying hi
> Javier is retiring from the JKL Partnership. In January of the current year, he has a $100,000 basis in his partnership interest when he receives a $10,000 cash distribution. The partnership plans to distribute $10,000 each month this year, and Javier wi
> Ricky and Sharon married at age 22, started a family, and bought a house. At age 30, they began making a contribution of $4,000 to a traditional IRA. They continued making these contributions annually until age 60. If the average return on their investme
> Assuming an 8% return, how much would Barry have if he could invest an additional $1,000 per year that his employer would match beginning at age 35?
> How much would Barry have if he could earn a 10% return on his investment beginning at age 35?
> 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 $3,600 per year to his plan. Barry’s employer will match this amount. If Barry can earn an 8% return
> Maryanne paid $300 for a call option on a stock. The option gives her the right to buy the stock for $27 per share until March 1. On February 15, the stock price rises to $32 per share, and Maryanne exercises her option. What is Maryanne’s return from th
> Teresa purchased a call option on a stock for $250. The option allows her to purchase the stock for $40 per share if she exercises the option by December 31. On December 15, the stock rises to $60 per share, and Teresa exercises the option. What is Teres
> Hope invested $9,000 in a mutual fund when the price per share was $30. The fund has a load fee of $300. How many shares did she purchase?
> Hunter invested $7,000 in shares of a load mutual fund. The load of the fund is 7%. When Hunter purchased the shares, the NAV per share was $70. A year later, Hunter sold the shares at a NAV of $68 per share. What is Hunter’s return from selling
> Hope (from problem 1) later sells her shares in the mutual fund for $37 per share. What would her return be in problems 1 and 2? Data from Problem 1: Hope invested $9,000 in a mutual fund when the price per share was $30. The fund has a load
> Mark owns a mutual fund with a NAV of $45.00 per share and expenses of $1.45 per share. What is the expense ratio for Mark’s mutual fund?
> If Hope (from problem 1) 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? Data from Problem 1: Hope invested $9,000 in a mutual fund when the price per share was $30.
> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend
> The Sampsons have been evaluating methods for investing money that will ultimately be used to support their children’s college education. They have concluded that a mutual fund is better suited to their needs than investing in individual stocks or indivi
> The Sampsons have been evaluating methods for investing money that will ultimately be used to support their children’s college education. They have concluded that a mutual fund is better suited to their needs than investing in individual stocks or indivi
> The Sampsons have been evaluating methods for investing money that will ultimately be used to support their children’s college education. They have concluded that a mutual fund is better suited to their needs than investing in individual stocks or indivi
> Ezra works for a firm that offers a 100% match up to 4% of his salary on retirement contributions. How much will Ezra accumulate in 20 years if he contributes 4% of his salary of $100,000 per year assuming his account earns an 8% annual return?
> Lloyd and his wife, Jean, have no retirement plan at work, but they contribute $4,000 each year to a traditional IRA. They are in a 25% marginal tax bracket. What tax savings will they realize for these contributions annually?
> Thomas earns $45,000 per year. What retirement plan should Thomas consider under the following circumstances? a. He works for a large private firm. b. He works at a university. c. He owns a small firm with employees.
> How much would Barry (from problem 1) have at retirement if he had started this plan at age 25? Data from Problem 1: Barry has just become eligible for his employer-sponsored retirement plan. Barry is 35 and plans to retire at 65. Barry calculates that
> Cedrick works for an employer that has a profit sharing retirement system. Assuming Cedrick made $133,000 last year, what is the maximum amount his employer can contribute to his retirement account?
> Briefly describe two popular retirement plans for self-employed individuals.
> Discuss the choices an employee has to manage a retirement account on leaving an employer.
> Discuss profit-sharing and employee stock ownership plans (ESOPs).
> Compare and contrast a Simplified Employee Pension (SEP) plan and a Savings Incentive Match Plan for Employees (SIMPLE).
> Discuss the general characteristics of a 401(k) plan. What is a 403(b) plan?
> Briefly discuss the key retirement planning decisions an individual must make.
> What is a defined- contribution plan? Why are many employers switching to this type of plan? List some of the benefits a defined-contribution plan offers to employees.
> What is a defined-benefit plan? What is vesting? What does it mean to be fully vested?
> Describe how employer-sponsored retirement plans work in general.
> Discuss some of the concerns about the future of Social Security.
> How are the retirement benefits under Social Security calculated? Describe some factors that affect the amount of your benefits.
> How does Social Security fit into retirement planning? How does an individual qualify for Social Security benefits? When do you receive benefits?
> What factors should you consider when deciding how to invest in your defined-contribution retirement fund?
> What is an employer match? Why is it important to take advantage of an employer match?
> How does your retirement age impact the amount of Social Security benefits you will receive?
> Why is it important to begin retirement planning while you are young?
> Explain the tax benefits of investing within a retirement account versus investing outside a retirement account.
> When estimating the future value of a set of annual investments, what factors will affect the amount of funds available to you at retirement?
> When estimating the future value of a retirement investment, what factors will affect the amount of funds available to you at retirement? Explain.
> Why are retirement accounts more beneficial than other investments that could be used for retirement? Describe an effective strategy for retirement planning.
> What is an annuity? What is the difference between a fixed annuity and a variable annuity? What is the main disadvantage of annuities?
> Compare and contrast a traditional IRA with a Roth IRA. Discuss the advantages of each. What factors will affect your choice of IRAs?
> The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is exactly when they need the funds for college expenses. D
> The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is exactly when they need the funds for college expenses. D
> The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is exactly when they need the funds for c
> Juana wants to add another asset to her portfolio. She is trying to decide between two assets that have correlations with her portfolio of +.65 and -.12 respectively. Which asset will provide the greatest benefit, and why?
> Explain how economic conditions in the United States influence economies of other countries.
> Why would a global recession possibly limit the potential benefits from international diversification?
> How is a gain or loss calculated from the trading of call options?
> Why can asset allocation be expensive? How can you reduce the costs?
> What is a stock option? Why is it important for an investor to understand how stock options function?
> What is a portfolio? How does a diverse portfolio help reduce risk?
> Over the last month, the Sampsons have been struggling with how to invest their savings to support their children’s college education. They previously considered stocks and bonds and are now seriously considering investing their money in mutual funds. Th
> Over the last month, the Sampsons have been struggling with how to invest their savings to support their children’s college education. They previously considered stocks and bonds and are now seriously considering investing their money in mutual funds. Th
> Over the last month, the Sampsons have been struggling with how to invest their savings to support their children’s college education. They previously considered stocks and bonds and are now seriously considering investing their money in mutual funds. Th
> Explain how mutual funds can help you conduct affordable asset allocation.
> What is a covered call strategy?
> Assume that 11 months ago you purchased stock in XYZ Company for $50 a share. The stock price is now $72 a share but you would like to wait another month before selling the stock in order to pay a lower capital gains tax rate. Explain how you can use a p
> What is meant by correlations among investments? How does correlation impact portfolio risk?
> How might your expectations of economic conditions influence your asset allocation? What is the problem with this strategy?
> How does your risk tolerance affect the asset allocation decision?
> Discuss the role that your stage in life plays in the asset allocation decision.
> “There is a right way and a wrong way to use stock options in asset allocation.” Evaluate this statement.
> What is a put option? How does it work?
> What is a call option? How does it work?
> Explain how your tolerance for risk when investing may have changed by the time you retire, and why.
> What are real estate investment trusts (REITs)? How are they classified? What are some attractive characteristics of REITs? How can REITs help diversify a portfolio?
> How can allocating some of your assets to bonds reduce the level of risk in your portfolio?
> Describe two strategies for diversifying a stock portfolio.
> What factors influence a portfolio’s risk? Explain.
> Why is it important to diversify your financial holdings across financial assets? How does asset allocation enable you to accomplish diversification?
> Mike has decided that it is time he put his money to work for him. He has accumulated a substantial nest egg in a savings account at a local bank, but he realizes that with less than 3% interest he will never reach his goals. After doing some research he
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock m
> Why are some U.S. investors attracted to international and global bond funds? What risk is associated with these funds that investors are not subject to when investing strictly in U.S. bond funds? Discuss the expenses associated with international and gl
> List and briefly describe the types of bond mutual funds.
> Why do investors invest in index funds? Discuss the popularity of index fund investment as it relates to expenses. What tax advantage do index funds offer relative to other types of mutual funds?
> List and briefly describe the different types of stock mutual funds.
> Describe the three components of the expense ratio. How can a no-load fund compensate brokers?
> What kinds of expenses do mutual funds incur? How are expense ratios calculated? Why should investors pay attention to expense ratios?
> What is the difference between no-load and load mutual funds? How do loads affect a fund’s return? Why do some investors purchase load funds? How does an investor purchase a no-load fund?
> What is a closed-end fund? Describe how closed-end funds function.
> What is an open-end mutual fund? What types of companies usually manage open-end funds? Describe how these funds work on a day-to-day basis.
> What is a mutual fund’s net asset value (NAV)? How is the NAV calculated and reported?
> List three reasons for investing in mutual funds.
> What are mutual funds? What two broad categories of mutual funds exist, and how are they different? Do investors select the securities the mutual fund invests in?
> What factors do you need to consider when deciding whether to add mutual fund investing to your financial plan?
> What are international bond funds? What specific type of risk do these funds have that domestic bond funds do not have?
> What is a life-cycle fund? What are the advantages of this type of mutual fund?
> What is a fund family? What are the benefits of using a fund family?
> Discuss diversification among mutual funds. Describe some strategies that make diversification more effective. What is a mutual fund supermarket?
> Explain how Lipper indexes are used.
