Barbara Analee, a retired registered nurse and business woman, recently retired at age 50 to pursue a life as a blues singer. She had been running a successful cosmetics and aesthetics business using state-of-the-art lasers to treat wrinkles and skin blemishes. She is married to Tom, a retired scientist (age 55). They have saved $3 million in their portfolio (Barbara contributed $2.5 million to this portfolio) and now they want to travel the world. Their three children are all grown and out of college and have begun to have their own families. Barbara now has two grandchildren. Barbara and Tom feel that they have achieved a comfortable portfolio level to support their familys needs for the foreseeable future. In order to meet their basic living expenses, Tom and Barbara feel that they need $75,000 per year in today's dollars before taxes to live comfortably. As a trained professional, Barbara likes to be involved in intensively researching investment opportunities. Barbara and Tom want to be able to provide $10,000 per year (pretax) indexed for inflation to each of their grandchildren over the next ten years for their college education. She believes that she can accomplish this through her portfolio. She also wants to set aside $15,000 each year (pretax) indexed for inflation for traveling for her musical performances at various dinner clubs around the U.S. They have no debt and they own their home without a mortgage. Most of their portfolio is currently in large cap U.S. stocks and U.S. Treasury notes and bills. They have approached Pamela Jaycoo, CFA, for guidance on how they could best achieve their financial goals while also providing for their grandchildrens college needs. Inflation is expected to increase at an annual rate of 3 percent into the foreseeable future.
Barbara Analee can be classified into which of the following personality types?
| B) | Individualist investor. |
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Answer and Explanation
Barbara can be clearly classified as an Individualist Investor whereby decisions are based on thinking, rather than feeling.
Having been trained as a nurse where the methodical study of the human anatomy is required, she would not be afraid to do her own research work on her investments and would even question recommendations and conclusions made by her investment advisors.
She is also less risk averse because she understands the results of her decisions, particularly when she is involved in treating hospital patients and customers using a laser. Cautious investors base their investment decisions on feeling and are more risk averse.
Methodical investors base their investment decisions on thinking and are also more risk averse.
Spontaneous investors, like individualist investors are less risk averse, but they base their decisions on feeling, rather than thinking.
Barbara can be clearly classified as an Individualist Investor whereby decisions are based on thinking, rather than feeling.
Having been trained as a nurse where the methodical study of the human anatomy is required, she would not be afraid to do her own research work on her investments and would even question recommendations and conclusions made by her investment advisors.
She is also less risk averse because she understands the results of her decisions, particularly when she is involved in treating hospital patients and customers using a laser. Cautious investors base their investment decisions on feeling and are more risk averse.
Methodical investors base their investment decisions on thinking and are also more risk averse.
Spontaneous investors, like individualist investors are less risk averse, but they base their decisions on feeling, rather than thinking.
What is the Analees return objective?
Answer and Explanation
The Analees pre-tax return objective is computed as follows: Ongoing living expenses | $75,000 | Travel expenses | $15,000 | College Fund | $20,000
| Total | $110,000 |
Portfolio Principal Value | $3,000,000 | Income Objective: | (110,000 / 3,000,000) 3.67% | Plus Inflation: | +3.00%
| Total Return Objective: | 6.67% |
The Analees pre-tax return objective is computed as follows: Ongoing living expenses | $75,000 | Travel expenses | $15,000 | College Fund | $20,000
| Total | $110,000 |
Portfolio Principal Value | $3,000,000 | Income Objective: | (110,000 / 3,000,000) 3.67% | Plus Inflation: | +3.00%
| Total Return Objective: | 6.67% |
What is their tolerance for risk?
Answer and Explanation
Their tolerance for risk is average. Their liquidity needs are high because of their living expenses and other needs yet they have a large portfolio so overall their risk tolerance is average. Since they are in their retirement years, they will need a greater proportion of dividend and interest income to be generated from their portfolio. This is balanced by their long time horizon which could exceed twenty years.
What is Barbaras willingness and ability to assume risk? | | | C) | Above average | Above average |
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Answer and Explanation
Although Barbaras willingness to assume risk may be high (above average) given her past entrepreneurial pursuits and the Analees time horizon is quite long, her ability to assume risk is average given her current income needs. Thus, the need to protect her current assets is important so her risk tolerance is lowered to average because of her high liquidity needs.
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发表于 2008-9-17 09:49
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