Smith is a member of the provide banking team at Pierpont Capital Management. His job responsibilities include meeting with high net-worth clients to discuss their financial situation. Smith attempts to meet the goals, objectives, and constraints of his clients while integrating the financial market views of Pierponts highly regarded research department. The research department currently recommends a balanced, diversifies portfolio given the large macro risks that continue to pervade the financial landscape.

Smith is currently working on the financial plan for the Jones family, who all live in the New York City region. The Jones family owns a wholesaling business. Because of a rapid expansion, the Jones family finds that their business, while profitable, has experienced cash-flow problems. The Jones family wishes to improve the cash-flow position in anticipation of selling the business. Toward that end, the business borrowed a significant amount of cash on a ten-year note, using the cash to pay down current obligations. At the end of the most recent year, after negotiating the bank loan, the assets and liabilities of the wholesaling business were as follows.

Book Value Market Value

Assets $5,000,000 $8,000,000

Liabilities $6,200,000 $6,400,000

An investor has offered the Jones family $2,500,000 for the business, and they have accepted.

The Jones family recently sold a business and they have no other material source of income, so they wish to have their portfolio managed relatively conservatively, prudently balancing both expected risk and return. They need to rely on the return from their portfolio to pay for a significant portion on their bills furthermore, they prefer to avoid investing in firms that provide alcohol, tobacco or gambling products or services.

1.Pierponts research department has turned bearish on the financial markets for the near term because of contagion related to the European financial crisis. To best serve the jones family in these conditions, Smith should recommend that the jones family overweight.

1. European equity funds
2. United States equity funds
3. United States corporate bonds
4. United states treasury bonds

Portfolio	Expected Return (%)	Expected Deviation (%)
Portfolio A	5%	10%
Portfolio B	6%	8%
Portfolio C	10%	17%
Portfolio D	11%	20%

2 . Smith presents the Jones family with the menu of investment opportunities shown above. Which is consistent with the familys investment objectives. Which investment is most appropriate for the family, assuming a risk free rate of interest of 2 per cent per year?

1. Portfolio A
2. Portfolio B
3. Portfolio C
4. Portfolio D

3. Smith is confident that the Jones family trusts him and therefore will accept any of his recommendations from a wide array of options. Investment options range from those that pay a substantial commission to smith (such as variable annuity insurance) to those that pay little or no commission (such as government securities). To act most responsibly, which of the following investment options should Smith recommend to the Jones family?

1. Investments with the lowest commission
2. Investments with the highest commission
3. Investments consistent with the familys preferences
4. Investments that historically have provided the highest returns

4. To customize a service-product bundle that best satisfies the requirements of the customer, Smith should deliver service with a high degree of face to face contact. However, devoting extensive time and effort to the customer comes at the expense of low-production efficiency. Conversely, Smiths service would provide opportunities for

1. Increasing the number of customers contacted
2. Allowing the customer time to make decisions
3. Increasing Pierponts brand exposure
4. Better understanding the needs of the customer

5. How were the current ratio and the debt/equity ratio affected for the Jones family by paying off current obligations by borrowing cash through the ten-year note?

1. Both the current ratio and the debt/equity ratio improved.
2. Neither the current ratio nor the debt/equity ratio improved
3. Both the current ratio and the debt/equity ratio remain unchanged

The current ratio improved, but the debt equity ratio