Ravichandran is $40$ and works as a professor at the University of NewYork making a salary of $$100,000$

annually before taxes. His wife Lavanya, age $38,$ also works at the university as a receivables clerk and

makes $$40,000$ before taxes. The couple file taxes jointly and pay a $35\%$ tax rate on income and

investment gains. As a tenured professor, Mr$.$ Ravichandran's$$ salary is fairly stable but only increases at

the rate of inflation. The couple has two sons, ages five and six.

Ravichandran just inherited $$850,000($after taxes$)$ from the estate of his father and the couple are talking

with their financial advisor, Max Cates about retirement planning. Besides the inheritance, the couple

also has:

$$165,000$ in a portfolio of $70\%$ bonds and $30\%$ stocks

$$150,000$ in stock of Coopers Manufacturing, a former employer of Ravichandran

The value of the stock in Coopers Mfg$.$ has increased substantially, and Ravichandran is confident about

the company$$s future. The couple wants to buy a house with part of the inheritance proceeds and needs

$$40,000$ for the down payment. The family$$s annual living expenses are $$112,000,$ and salary increases

will cover any of these expenses. They do not plan on paying for their son$$s college tuition.

In talking with Cates, the couple discussed several key points:

B$.$ Their religious faith precludes them from investing in companies that sell alcohol or tobacco

C$.$ They plan on retiring in $17$ years when their oldest son finishes college

D$.$ They would like to retire comfortably and are not sure the current portfolio mix will give them

the return they need. They are willing to take additional investment risk but would also be

willing to scale back their retirement plans.

Cates estimates that the couple will need $$2$ million to retire in $17$ years. He discusses several options

with Ravichandran and formulates an IPS.

A$.$ Formulate the IPS's return objective for Ravichandran. Calculate the pretax rate of

return required to achieve this objective. Show your calculations.

B$.$ Identify two factors that increase the Ravichandran$$s risk tolerance

C$.$ Identify one factor that limits Ravichandran$$s risk tolerance

D$.$ Formulate the constraints portion of the IPS for the Ravichandran, addressing each of

the following:

i$.$ taxes

ii$.$ unique Circumstances

iii. time horizon

iv$.$ liquidity requirements

Twelve years have passed and there first son is entering college. The couple have changed their mind

and would now like to pay for the first year$$s tuition for both sons which will amount to $$45,000$ this

year and next.

E$.$ Identify how this affects the couple$$s ability to tolerate risk. No calculations needed.