1. (20 points). You are a financial advisor to Mr. and Mrs. Vasquez. They are 65 years old, retired with $3 million in their pension plan portfolio. They have no other investments, and receive no other income. They state that their average tax bracket is 2596, they need to cash out $75,000 per year from their pension portfolio for their living expenses, and another $ 45,000 per year for the college fund for their grandchildren. Botb.of.these are in today's dollar (indexed or adjusted for inflation in the coming years). You forecast that the long-term inflation is 2.5%. Their current pension plan portfolio allocation is 75% in large-cap, well-established U.S. stocks and 25% in U.S. Treasury notes. A B. Calculate their annual return objective before and after tax, in percentage. What is their ability and willingness to risk (risk tolerance level)? Ability to take risks; a Willingness to take risk is; a. in part B a. Willingness Above average b. Below average C. Above average Average b. Below average C. Above average Average b Below average c. Above average C. Choose one of the combined (joint) answer (a, b, or c) based on your answer Ability everage above average D. Based on the information in the case, and your answers in the above parts (A, B, and C) which one of the following portfolios should you recommend? Expected Asset Allocation Return Portfolio A Portfolio B Portfolio C U.S. large stocks 9% 20% 5% 10% US small stocks 10 20 15 10 Foreign stocks 12 15 15 10 Corp. bonds 5 15 0 35 Gov. bonds 3 10 0 25 Venture capital 11 5 30 0 Real estate 15 10 30 0 Cash 1 5 5 10 Pretax retum 8.8% 11.6% 5.7% After-tax retum 5.6% 7.4% 3.6% after-tax yield 1.9% 1.9% 2.8% uns: On Accessibility: Investigate