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You are a financial advisor to Mr . and Mrs . Smith. They are 6 5 years old, retired with $ 3 million in their
You are a financial advisor to Mrand Mrs Smith. They are years old, retired with $ million in their pension plan portfolio. They have no other investments and receive no other income.
They state that their average tax bracket is they need to cash out $ per year from their pension portfolio for their living expenses, and another $ per year for the college fund for their grandchildren. Both are in todays dollar indexed or adjusted for inflation in the coming years You forecast that the longterm inflation is
Their current pension plan portfolio allocation is in largecap, wellestablished US stocks and in US Treasury notes.
A Calculate their annual return objective before and after tax, in percentage.
B What is their ability and willingness to risk risk tolerance level
C Ability to take risk is
a Average
b Below average
c Above average
D Willingness to take risk is;
a Average
b Below average
c Above average
E Choose one of the combined joint answer a b or c based on your answer in part B
Willingness Ability
a Above average average
b Below average average
c Above average above average
F Based on the information in the case, and your answers in the above parts A B and C which one of the following portfolios should you recommend?
Expected Asset Allocation
Return Portfolio A Portfolio B Portfolio C
US large stocks
US small stocks
Foreign stocks
Corp. bonds
Gov. bonds
Venture capital
Real estate
Cash
Pretax return
Aftertax return
aftertax yield
a Portfolio A
b Portfolio B
c Portfolio C
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