Question

Your Aunt Agnes is ready to retire after a 44 -year career as a nurse. She will be 65 on April 1 st and desires nothing more than to move to Florida and live in a small condo on a beach (a two bedroom, so her favorite relative - you - can visit anytime). Agnes estimates that to live in Florida, she will need approximately $45,000 per year to live on. Her Social Security Check is estimated at the national average of $1,658 per month. Your task? Using the Rule of 102 and her $475,000 in 401 K savings, create a diversified investment portfolio that will allow Aunt Agnes to live out her dream. Then, create a simple writeup of your plan, noting why you chose to make the investment decisions you did. Step 1: Determine Stocks + Bonds First, determine the mix of stocks and bonds she should have. To do this, you will need to solve the 10 bond problems in the box below for one missing item. 10 Bond Problems 1. A 5 -year bond issued by Bank of America with a 3.8% coupon and a 4.5% yield to maturity. 2. A 10-year Treasury bond with a 3.7% yield to maturity and a 3.5% coupon. 3. An 8 -year Treasury bond paying $19 every six months and a 3.4% annual yield to maturity. 4. A 2 -year bond issued by Duke Energy with a 4% coupon and 3.9% market interest rate. 5. A development bond issued by the new St. Louis soccer stadium developers, priced at $1.234.48 per bond, with a market interest rate of 4.5% and a 25 -year life. 6. A 15 semi-annual year Treasury bond with a yield to maturity of 3.1% and a price of $1000. 7. An Apple corporate bond with 8 years left to maturity is priced at $984.24 and a market rate of 3%. 8. A 1-year Treasury, priced at $1.015.34, paying $37 annually. 9. A 4 year bond from Walmart with a $24 interest payment every six months is priced at $1,085.43. 10. A 3-year Treasury bond with a 3.1% coupon is priced at $985.24. Step 2: Generate an Investment Table Generate a table of the investments you recommend with these guidelines: - Agnes wants to live off of her social security payments, bond interest payments, and stock market gains. - A diversified stock index (your only stock market choice) has an expected return of 8%. - Note: The bond portfolio will consist of individual bonds but needs to be diversified. In the real world, that means at least 30 different bond issues across sectors, duration, and geography. For this assignment, there will be a minimum of 5 bonds (you can use more). and no one bond can be more than 25% of the total bond portion of her assets. - Do niot worry about taxes. - Do not wory a bout inflation. - The table thould show how she is to meet or beat her $45,000 annual income goal, showing ALL of her sources of income. - The table should clearly label which bonds you chose. - The table should be well formatted and cut and pasted into the Word document that you use to answer the questions. Step 3: Write Your Explanation - Using Word. write as short explanation of your choices, including how you determined them and why there is a mix between the assets. - Explain why you picked the bonds that you did, think particularly about the table you generated. - Cut and paste the tasle into your Word document to illustrate your thinking. - Finally, explain at leust one risk associated with the bond investments. Submission Instructions - Subrrit your Excel file showing your investment table - Submit your Word Document outlining your recommendations

Answer 1

Creating a diversified investment portfolio for Aunt Agnes involves allocating a portion of her $475,000 401(k) savings to bonds and the rest to a diversified stock index, considering her expected $45,000 annual expenditure in retirement.

Step-by-step explanation:

The process of establishing a diversified investment portfolio for Aunt Agnes involves two steps: determining the mix of stocks and bonds, followed by creating a budget that includes her social security income and the returns from these investments. The Rule of 102, also known as the "Rule of 100", is typically used as a guideline for balancing investments between stocks and bonds. However, this term seems to be misused in the question, so we'll assume the rule requires a conservative approach due to Aunt Agnes's age and retirement status. With a 401(k) savings of $475,000 and an expected annual expenditure of $45,000 to live in Florida, a significant portion of the investments should probably be allocated to bonds to provide regular income, and the rest can be invested in a diversified stock index. This plan involves calculating the income generated from the social security payments and the yield from the chosen bonds.

Answer 2

To finance Aunt Agnes’s retirement in Florida, a diversified investment portfolio with a mix of bonds and stocks is required to supplement her social security income. A detailed investment table demonstrating how her annual income goal will be achieved must be created. All choices must consider risk and expected returns while adhering to diversification and allocation guidelines.

Step-by-step explanation:

The student has posed a scenario where Aunt Agnes is retiring and is in need of an investment plan to fund her retirement years in Florida. To achieve an annual income goal of $45,000 while factoring in her social security benefit, a diversified investment portfolio needs to be constructed, focusing on the right mix of stocks and bonds. Given that Aunt Agnes receives $1,658 per month from Social Security, which adds up to $19,896 annually, she will need additional income from her investments to meet her expenses.

To create a plan, we must consider the available bond opportunities, which include different types, yields to maturity, and coupons. For instance, the first bond mentioned is a 5-year bond with a 3.8% coupon and a 4.5% yield to maturity. The stocks will come from a diversified stock index with an expected return of 8%. The final portfolio must have a minimum of five different bonds, adhering to diversification rules, and no single bond exceeding 25% of the total bond portfolio.

After considering all income sources, we must generate an investment table that shows how Aunt Agnes will meet or exceed her income goal. This table should clearly label the chosen bonds and reflect thoughtful diversification based on factors such as risk, expected return, and bond maturity dates. Finally, we must present the risks associated with the bond investments, which could include interest rate risk, default risk or inflation risk, to ensure complete transparency in the recommendation.