These questions can be answered briefly, as long as the answer is complete Asset allocation refers to the distribution of our assets among different asset classes, like cash equivalents, bonds, and stocks Derrick (age 28) currently has a total of $30,000 in a savings account at his local bank, after receiving an inheritance from his grandmother $10,000 of that total is earmarked for the purchase of a home in 5 years, and Derrick would like to use $15,000 for retirement investments Taking into account that Derricks monthly expenses are $2,500, suggest how you feel Derrick should allocate his $30,000 among cash equivalents, stocks, and bonds Explain why you selected the amount in each asset class Amount Reasoning Stocks Bonds Cash Total $30,000 Based on long term history, what has been the average rate of return on stocks, bonds, and cash equivalents Return Stocks Bonds Cash When answering the following questions, remember that the cells can GROW as you expand your answers to provide complete explanations to the questions asked J Why would you ever want to invest in cash equivalents, given that they have the lowest long term average rate of return Why shouldnt you put all your money into stocks or stock mutual funds, even though stocks have the highest long term average rate of return Explain why stocks are extremely risky in the short run (0 10 years), but safe in the long run Briefly discuss the effect of inflation on purchasing power and reference the long term average returns for stocks, bonds, cash equivalents, and inflation in your answer Explain how a mutual fund works How do mutual funds help you invest in cash, bonds, and stocks One of the benefits of mutual funds is professional money management A) What makes the people who run mutual funds professionals and B) Why are you not likely to be as professional as they are with respect to investing One of the benefits of mutual funds is diversification A) Explain how diversification is achieved by a mutual fund B) What is the worst thing that can happen to you if you are not diversified and invest in just a few stocks or bonds

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These questions can be answered briefly, as long as the answer is complete. Asset allocation refers to the distribution of our assets among different asset

These questions can be answered briefly, as long as the answer is complete.

Asset allocation refers to the distribution of our assets among different asset classes, like cash equivalents, bonds, and stocks.

Derrick (age 28) currently has a total of $30,000 in a savings account at his local bank, after receiving an inheritance from his grandmother. $10,000 of that total is earmarked for the purchase of a home in 5 years, and Derrick would like to use $15,000 for retirement investments. Taking into account that Derricks monthly expenses are $2,500, suggest how you feel Derrick should allocate his $30,000 among cash equivalents, stocks, and bonds. Explain why you selected the amount in each asset class.

	Amount	Reasoning
Stocks
Bonds
Cash
Total	$30,000

Based on long-term history, what has been the average rate of return on stocks, bonds, and cash equivalents?

	Return %
Stocks
Bonds
Cash

When answering the following questions, remember that the cells can GROW as you expand your answers to provide complete explanations to the questions asked. J

Why would you ever want to invest in cash equivalents, given that they have the lowest long-term average rate of return?

Why shouldnt you put all your money into stocks or stock mutual funds, even though stocks have the highest long-term average rate of return?

Explain why stocks are extremely risky in the short-run (0-10 years), but safe in the long-run. Briefly discuss the effect of inflation on purchasing power and reference the long-term average returns for stocks, bonds, cash equivalents, and inflation in your answer.

Explain how a mutual fund works. How do mutual funds help you invest in cash, bonds, and stocks?

One of the benefits of mutual funds is professional money management. A) What makes the people who run mutual funds professionals? and B) Why are you not likely to be as professional as they are with respect to investing?

One of the benefits of mutual funds is diversification. A) Explain how diversification is achieved by a mutual fund. B) What is the worst thing that can happen to you if you are not diversified and invest in just a few stocks or bonds?