Victor and Maria Hernandez Wonder About Investing

Victor and Maria have decided to increase their contribution to their investment portfolio since Victor is now age $59$ and thinking about retiring in five years. For years, they have followed a moderate$-$risk investment philosophy and put their money in suitable stocks, bonds, and mutual funds. The value of their portfolio is now $$420,000,$ and this is in addition to their paid$-$for rental property, which is worth $$300,000.$ They plan to invest about $$8,000$ every year for the next five years.

$($a$)$ Why should Victor and Maria consider buying common stock as an investment with the additional money? Why or why not?

$($b$)$ If Victor and Maria bought a stock with a market price of $$50$ and a beta value of $1\mathrm{.}8,$ what would be the likely price of an $$8,000$ investment after one year if the general market for stocks rose $6$ percent?

$($c$)$ What would the same investment be worth if the general market for stocks dropped $8$ percent?

$($d$)$ Review the types of stocks in Table $14-1$ and select two that you think Victor and Maria might prefer as investments. Explain why.

$($e$)$ Discuss the positives and negatives of preferred stock for Victor and Maria.