Question

(a) Some comparable mutual fund performance data on stock funds are shown in Table 15-3. Using only that information and assuming that you are recommending some funds for the Johnsons’ retirement needs, which two funds would you recommend? Why?
(b) How would you divide the $9500 between the two stock funds? Why?
(c) How much of the $300 monthly investment amount would you allocate to each of the stock funds? Why?
(d) Assume that both funds increase in value over the next ten years. Another bear market then occurs, causing the NAVs to drop 25 percent from the previous year. Would you recommend that the Johnsons sell their accumulated shares in the funds? Why or why not?
(e) Determine the value of the shares purchased with their $9500 original investment in ten years, assuming that the two funds’ NAVs increase 6 percent annually for the ten years.

After learning about mutual funds, the Johnsons are confident that they are a great way to invest, especially because of the diversification and professional management that funds offer. The couple has a financial nest egg of $9500 to invest through mutual funds. They also want to invest another $300 per month on a regular basis. Although not yet completely firm, Harry and Belinda’s goals at this point are as follows:
• They want to continue to build their retirement income to retire in about 36 years.
• They will need about $10,000 in six to eight years to use as supplemental income if Belinda has a baby and does not work for six months.
• They might buy a luxury automobile requiring a $10,000 down payment if they decide not to have a child. Knowing that the Johnsons have a moderate investment philosophy, that they live on a reasonable budget, and that they have a well-established cash-management plan, advise them on their mutual fund investments by responding to the following questions:



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  • CreatedNovember 26, 2014
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