SHOW WORK

The Hannefins have come to you for help managing their portfolio. Answer questions 1 thru 5 below and also write an Investment Policy Statement based on the information provided in the case. The Hannefins The Hannefins are a family with two children: Brent aged 15 and Anne aged 9, each of whom will go to the same in-state university when they turn 18. Mr. Hannefin, 42, is the wage-earner and Mrs. Hannefin is 41; the Hannefins hope to retire when Mr. Hannefin reaches 62 and want to have a pre-tax retirement income of $ 50,250 quoted in current pre-tax dollars. The Hannefins plan to pay for 4 years of college for each child; the current cost of 4 years at the in-state university their children will attend is approximately = $ 145,000 per student. They also like to keep a cash reserve for emergencies of at least $15,000 which they have not yet set aside. Both the Hannefins are willing to take a reasonable amount of risk to grow their portfolio while the husband is working in order to achieve their retirement income needs without needing a return so high they would need to take a lot of risk in retirement (they want to be in a position such that the required return in retirement is 5.5% or less). The Hannen ns will also add any excess income to their portfolio while the husband is working, if such excess funds are available. Mr. Hannefin currently earns $ 82,000 pre-tax income per year and expects to make the same amount each year until retirement while they have annual expenses after tax of $ 59,040 (they are in the 28.0% income tax bracket and expect to pay a 20.0% tax rate on dividends and capital gains). The Hannefins have set up a Living Trust to transfer any remaining assets to their children in the event they pass away unexpectedly. The Hannefins' current investment assets are as follows: an inheritance of $ 475,000 just received that they will add to the portfolio, stocks with a current market value of $ 214,000, fixed income securities worth $ 267,500, real estate rental/investment property worth $ 325,000, and unvested stock options with a built-in capital gain of $ 86,500. At the time the Hannefins retire, they would like to pay cash to buy a condo in the Bahamas; they just returned from vacation there and found a condo they like that currently costs $265,000 You are planning to use the following inflation numbers in your analysis: 3.2% annual for non-college expense items and 5.5% for college expenses. 1] Determine the size of the Hannefins' starting investment portfolio. 2] Determine the size and timing of liquidity needs that will be carved out of the portfolio up to retirement