Daniel Plainview is a widower who recently retired after a long career as an oil man. Beginning as a skilled prospector and using the tactics of very long straws, he worked his way up to the level of oil baron over a period of more than 30 years with his rm. Daniel receives Social Security benets and a generous company pension. Together, these amount to over $4,500 per month (part of which is tax-free). The Plainviews had no children, so he lives alone. Daniel owns a two-bedroom rental house that is next to his home, and the rental income from it covers the mortgage payments for both the rental house and his house. Over the years, Daniel and his late wife, Alice, always tried to put a little money aside each month. The results have been nothing short of phenomenal. The value of Daniels liquid investments (all held in bank CDs and savings accounts) runs well into the six gures. Up to now, Daniel has just let his money grow and has not used any of his savings to supplement his Social Security, pension, and rental income. But things are about to change. Daniel has decided, Ive drank your milkshake! I drank it up! So, its time I start living the good life! Daniel wants to travel and, in eect, start reaping the benets of his labors. He has therefore decided to move $100,000 from a savings account to one or two high-yielding mutual funds. He would like to receive $1,000 to $1,500 a month from the fund(s) for as long as possible because he plans to be around for a long time.

(a) Given Daniels nancial resources and investment objectives, what kinds of mutual funds do you think he should consider?

(b) WhatfactorsinDanielssituationshouldbetakenintoconsiderationinthefundselectionprocess? How might these aect Daniels course of action?

(c) What types of services do you think he should look for in a mutual fund?

(d) Assume Daniel invests in a mutual fund that earns about 10% annually from dividend income and capital gains. Given that Daniel wants to receive $1,000 to $1,500 a month from his mutual fund, what would be the size of his investment account ve years from now? How large would the account be if the fund earned 15% on average and everything else remained the same? How important is the funds rate of return to Daniels investment situation? Explain.

*USE FORMULAS NOT EXCEL*