2017SP-MAT-1120-XE01 Finite Mathematics (MAT-1120-XE01) Project Due: 5 May 1159pm (electronic copy) / 8 May 2015 (Hard Copy) Context: 10% of overall grade Project: You are a financial counselor. Your client is a 20 year old professional basketball player who was drafted in the 2th round. He is a solid player, but by no means a superstar. He was given a $1 Million dollar signing bonus and he has a five year contract (guaranteed) at 1.5 million dollars per year. Other facts: a. He lives in a sexy downtown apartment. He pays $4000.00/month in rent on a month to month lease. He is afraid to buy a house as his footing in the NBA long term is not guaranteed. The average player stays in the league 5 years. b. He currently has $750,000 left in the bank (checking account). He partied a bit before coming to you. c. He is also in the 40% tax bracket for state and federal taxes so his after tax cash flow for the next five years is actually $600,000/yr. d. You have a mix of investment vehicles you want to put in front of him. They include: a. Purchasing a home (you are thinking a 4-5 bedroom property, price range $400K-500K) in suburbia. You are also thinking either recommend to buy the property outright or put a decent percentage down to ensure a nominal mortgage payment for a 5-10-15 or 30 year mortgage. The trends of the housing market are good. Homes nationwide have been appreciating on the average 3% per year the past decade. b. Invest in an annuity. Banks have a good deal for those who have access to investment opportunities. They are willing to pay 6% interest for monthly investments 3000.00/month or more, 3 to 5 years. c. Bank Savings: As a financial counselor, you would like to have a risk free mechanism to access cash at a moment's notice. Banks pay 3% early in simple interest. d. Stock Investment: The stock market is relatively hot right now. You follow the Dow Jones index and other research data which says if you invest now you have an 85% chance or receiving a 10% rate of return and a 15% chance of losing 3% of your initial investment the next 5 years. If you use this investment vehicle you must take into account the potential downside. e. Doing Nothing: Not an option for this exercise. Project Tasks: a. (40%) Put together an investment plan which incorporates any or all of these investment vehicles based on your client's financial profile. For each of the vehicles you may choose give specific investment amounts and timeframes (annuities, need payment info and timeframe locked in with the bank. If you choose to recommend to buy a home, need to layout what will be the price of the home, the amount of down payment and the monthly mortgage payment based on the length of the mortgage selected). Show year 0 of the plan, which investments you select and what will be remaining in the bank. Format should be: Investment Vehicle Vehicle A Vehicle B Vehicle C Remaining in Bank Amount Comment b. (10%) Put together a Year 0 - Year 5 view of what his net worth will be yearly (including what he may have in the bank, including 0 interest checking accounts based on your investment recommendations The format will be: Year Net Worth 0 1 2 3 4 5 c. (10%) Put together a monthly budget for the young basketball player. Specifically the budget layout will be in this format. Remember he has $50,000 after tax monthly budget to work with (As financial advisor you have to be honest to your client to ensure he is safe for the future). You can add or subtract the expenditures as long as it reflects reality: Monthly Expenditure Rent/Mortgage Food Savings Investments Utilities Entertainment Friends/Family/Homeboys Allowance Amount Comment d. (40%) Need a 600-1000 word description of what your investment strategy is, talking to the risks involved and why you picked the investment mix. Please turn in: a. Electronic Copy (5 May 2017 1159pm) b. Hard Copy (last class 8 May 2017) c. Notes with all calculations (with hard copy turn-in) e. The assignment purposely left open ended the specific amounts and mix of investment vehicles to allow the student to think and present a plan based on his/her knowledge of fiscal investments and expected value. The best scores will show understanding of the task at hand and providing the best mix and rationale of investments in the interests of the young basketball player