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). Agnes 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 401K savings, create a diversified investment portfolio that will allow Aunt Agnes to live out her dream. Then, create a simple write-up 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

1. A 5-year bond issued by Bank of America with a 3.8% coupon and a 4.5% yield to maturity.
2. A 10-year Treasury bond with a 3.7% yield to maturity and a 3.5% coupon.
3. An 8-year Treasury bond paying $19 every six months and a 3.4% annual yield to maturity.
4. A 2-year bond issued by Duke Energy with a 4% coupon and 3.9% market interest rate.
5. A development bond issued by the new St. Louis soccer stadium developers, priced at $1,234.48 per bond, with a market interest rate of 4.5% and a 25-year life.
6. A 15 semi-annual year Treasury bond with a yield to maturity of 3.1% and a price of $1000.
7. An Apple corporate bond with 8 years left to maturity is priced at $984.24 and a market rate of 3%.
8. A 1-year Treasury, priced at $1,015.34, paying $37 annually.
9. A 4-year bond from Walmart with a $24 interest payment every six months is priced at $1,085.43.
10. A 3-year Treasury bond with a 3.1% coupon is priced at $985.24.

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.