Your Aunt Agnes is ready to retire after a $44-$year career as a nurse. She will be $65$ on April $1$st and desires nothing more than to move to Florida and live in a small condo on a beach $($a two bedroom, so her favorite relative $$ you $$ can visit anytime$).$ Aunt Rita estimates that to live in Florida, she will need approximately $$45,000$ per year to live on$.$ Her Social Security Check is estimated at the national average of $$1,658$ per month.

Your task? Using the Rule of $102$ and her $$475,000$ in $401$K savings, create a diversified investment portfolio that will allow Aunt Agnes to live out her dream. Then, create a simple writeup of your plan, noting why you chose to make the investment decisions you did.

Step $1$: Determine Stocks $+$ Bonds

First, determine the mix of stocks and bonds she should have. To do this, you will need to solve the $10$ bond problems in the box below for one missing item.

$10$ Bond Problems

A $5-$year bond issued by Bank of America with a $3\mathrm{.}8\%$ coupon and a $4\mathrm{.}5\%$ yield to maturity.

A $10-$year Treasury bond with a $3\mathrm{.}7\%$ yield to maturity and a $3\mathrm{.}5\%$ coupon.

An $8-$year Treasury bond paying $$19$ every six months and a $3\mathrm{.}4\%$ annual yield to maturity.

A $2-$year bond issued by Duke Energy with a $4\%$ coupon and $3\mathrm{.}9\%$ market interest rate.

A development bond issued by the new St$.$ Louis soccer stadium developers, priced at $$1,234\mathrm{.}48$ per bond, with a market interest rate of $4\mathrm{.}5\%$ and a $25-$year life.

A $15$ semi$-$annual year Treasury bond with a yield to maturity of $3\mathrm{.}1\%$ and a price of $$1000.$

An Apple corporate bond with $8$ years left to maturity is priced at $$984\mathrm{.}24$ and a market rate of $3\%.$

A $1-$year Treasury, priced at $$1,015\mathrm{.}34,$ paying $$37$ annually.

A $4-$year bond from Walmart with a $$24$ interest payment every six months is priced at $$1,085\mathrm{.}43.$

A $3-$year Treasury bond with a $3\mathrm{.}1\%$ coupon is priced at $$985\mathrm{.}24.$

Step $2$: Generate an Investment Table

Generate a table of the investments you recommend with these guidelines:

Agnes wants to live off of her social security payments, bond interest payments, and stock market gains.

A diversified stock index $($your only stock market choice$)$ has an expected return of $8\%.$

Note: The bond portfolio will consist of individual bonds but needs to be diversified. In the real world, that means at least $30$ different bond issues across sectors$,$ duration, and geography. For this assignment, there will be a minimum of $5$ bonds $($you can use more$),$ and no one bond can be more than $25\%$ of the total bond portion of her assets.

Do not worry about taxes.

Do not worry about inflation.

The table should show how she is to meet or beat her $$45,000$ annual income goal, showing ALL of her sources of income.

The table should clearly label which bonds you chose.

The table should be well formatted and cut and pasted into the Word document that you use to answer the questions.

Step $3$: Write Your Explanation

Using Word, write a short explanation of your choices, including how you determined them and why there is a mix between the assets.

Explain why you picked the bonds that you did, think particularly about the table you generated.

Cut and paste the table into your Word document to illustrate your thinking.

Finally, explain at least one risk associated with the bond investments.

Create a Portfolio Rubric

Criteria Ratings Pts

Excel $-10$ Bond Questions

$10$ pts

Full Marks

All $10$ Correct, $1$ point each

$6$ pts

Developing

Missed $1-4$ questions

$4$ pts

Needs Improvement

Missed $5-9$ questions

$0$ pts

No Marks

No Attempted

$/10$ pts

Excel $-$ Rule of $102$

$3$ pts

Full Marks

$\%$ of Stocks properly calculated and applied to table

$2$ pts

Developing

Rule of $102$ used, but mistakenly done for bond percentage

$0$ pts

No Marks

Not used

$/3$ pts

Excel $-$ Social Security and Stock Income

$5$ pts

Full Marks

Properly calculated and put into table

$3$ pts

Developing

One properly calculated, the other not

$0$ pts

No Marks

Not attempted

$/5$ pts

Excel $-$ # of Bonds

$5$ pts

Full Marks

At least $5$ bond used, totaling no more than $$299,250.$ PV used to determine bonds purchased, whole bonds only.

$3$ pts

Developing

Either too many or few bonds used, total spent exceeded $$299,250$ or PV not used to determine number of bonds purchased

$0$ pts

No Marks

Multiple errors make it impossible to follow

$/5$ pts

Excel $-$ Cash Flows from Bonds properly identified

$5$ pts

Full Marks

Annual income calculated by # of bonds X Annual Coupon

$3$ pts

Developing

Annual Income Calculated properly for some, but not all, or partial bonds used

$0$ pts

No Marks

Not calculated

$/5$ pts

Excel $-$ Formatting

$5$ pts

Full Marks

Format easy to read, well labelled

$3$ pts

Developing

Struggled to follow method due to formatting, but ultimately accomplished

$0$ pts

No Marks

Unable to determine method due to formatting

$/5$ pts

Word Doc $-$ Explanation of Stock and Bond Mix

$3$ pts

Full Marks

Explanation of the Rule of $102$ and the reasons for the rule.

$2$ pts

Developing

Rule of $102$ used and stated, but not fully explained

$0$ pts

No Marks

No explanation