Larry King is employed at Global Asset Management (Global) in New York. King has new clients, Daniel and Katie Shleyer, who are in their mid-50s. Over the years, the Shleyers built a successful residential construction company and recently sold their business by exchanging the equity in their business for shares of publicly traded stock of a national home builder. The Shlexers now work for the company who bought it. They have two children who live on their own and are financially independent, and one grandchild. The Shlexers have no debt and a sizable net worth consisting of the stock of the company which bought them out, their primary residence, a rental property, a second home, and some other equity and fixed income assets. Because of the sale of their business, Daniel and Katie now find themselves in a position to retire early. They have sought King's advice regarding their assets in preparation for retirement. Daniel Shleyer states, "We have too many taxable assets, including the high concentration of low basis stock from the sale of our business. We need to reallocate our assets into a more diversified and tax efficient portfolio." Katie Shleyer adds, "Another concern is to ensure the majority of our assets go to our children with the remainder being left to a few charities and the local hospital, university, and library. When we retire I want to start taking less risk. We took risk to build our business and I would not want to do that again. In retirement we want to start making annual tax-deductible donations of $16,000 to charitable non-profit organizations throughout our retirement adjusted for inflation." The Shleyers plan to retire in one year and would like to maintain their standard of living (maintain their current spendable income), taking into account an expected inflation rate of 3%. The Shleyers' before-tax annual income consists of $161,000 salary from the company, $28,000 from rental property, and $4,000 from bonds. The Shleyers are taxed at a rate of 28%. The following is a list of their assets and the expected value of the assets in one year: Asset Money market account Taxable bonds Common stock from sale of their business Other common stocks Primary residence Vacation home Rental property Total Questions: Expected $ Value in One Year 16,000 79,000 4,717,000 24,000 786,000 393,000 472,000 6,487,000 1. State one factor that increases and one factor that decreases the Shleyers' ability to take risk. Explain one factor that decreases their willingness to bear risk. 2. Calculate the after-tax nominal rate of return required to meet their living expenses during their first year of retirement based on their marketable investment assets. Show your calculations. 3. Assuming the Shleyers have just retired and all other facts are as expected, formulate the Shleyers' liquidity needs and time horizon. (10 points) 4. Assuming the Shleyers are able to sell their concentrated position of stock, have refined their required return as being 5.7%, and agreed that an average risk profile is most