The High Yield Dilemma Case

You were recently hired by a large company with a $401$K plan. They gave you extensive paperwork to fill out including at least thirty different mutual funds to choose from. You worry about the stock market. The last two years have not been good for stocks. You have decided to invest in fixed income because it is safer.

However, you are concerned that returns, while safe, tend to be low in this type of investment. Interest rates have gone up in the last two years or so$.$ That$$s good, making bonds more attractive. You know that $$junk bonds,$$ more properly called unrated bonds, tend to give a higher return.

Write a paper showing what percentage of your fixed income retirement investment should be in junk bonds. That means you must give a specific percentage. Be clear on what a junk bond is$.$ Analyze the attractive and unattractive aspects of a junk bond. Don$$t overlook the probability of default. Remember that a portion of your fixed income portfolio will still be invested in rated $($non$-$junk$)$ bonds. Be specific on the junk bond percentage you recommend and why you feel this is a smart choice. Show real MBA skill in making your case.

Identify the three actual mutual funds for your retirement funds. Do not write, $$I would pick some funds...$$ Identify actual funds. Show that they contain junk bonds, have a track record of success with these risky investments and will meet your investment preferences. A Few Pointers for Good Students:

$$ Check out Morningstar to get a rating that could justify your choices. $$ You might identify some reasonable benchmark, such as rising at some percentage over the last five years.

$$ Look for facts and evidence to support your recommendations.

$$ Do not fill your paper with definitions or opinions.

$$ Give current information with financial terms and analysis

Note: Please follow the feedback avoid those terms.

:

Pg$.2$: You open with a definition of junk bonds. Please refer to case instructions and notes from the class discussion!

Pg$.2$: $...$the danger associated with them $[$junk bonds$]$ This is not what the case calls for.

Please use page numbers and page headers.

Pg$.3$: $$cash out fast$$ For a retirement portfolio?

Pg$.3$: $...$the likelihood of default varies based on the issuing company$$s credit rating.$$ Please, no more non sequiturs!

Did you read the instructions for the case???

Don$$t the names of the three funds imply that $100\%$ of their assets are high yield?

Pg$.4$: $...$option for seniors seeking a large yield$$ The case says this is your retirement fund.

No Morningstar ratings shown for these funds

Please resubmit this paper:

It appears you did not read the case with care.

More work. More analysis. More detail needed.

Make sure you do what the case says you should do$!$