Susan Lustier is 35 years old and employed as a tax accountant for a major oil and gas exploration company She earns nearly 5135.000 a year from her salary and from participation in the companies drilling acerbities An expert on oil and gas taxation, she is not warned about job security-she is content with her income and finds it adequate to allow her to buy and do whatever she wishes Her current philosophy is to live each day to its fullest. not concerning herself with retirement. which is too far in the future to require her current attention A month ago. Susan's only surviving parent, her father. was killed in a sailing accident He had retired in La Jolla, California, 2 years earlier and had spent most of his time sailing Prior to retirement, he managed a children's clothing manufacturing firm in South Carolina Upon retirement he sold his stock in the firm and invested the proceeds in a security portfolio that provided him with supplemental retirement income of over 530.000 per year In his will, he left his entire estate to Susan The estate was structured in such a way that in addition to a few family heirlooms. Susan received a security portfolio having a market value of nearly $350,000 and about $10,000 in cash
Susan's father's portfolio contained 10 securities: 5 bonds. 2 common stocks, and 3 mutual funds The following table lists the securities and their key characteristics The common stocks were issued by large, mature, well-known firms that had exhibited continuing patterns of dMdend payment over the past 5 years The stocks offered only moderate growth potential- probably no more than 2% to 3% appreciation per year. The mutual funds in the portfolio were income funds invested in diversified portfolios of income-oriented stocks and bonds They provided stable streams of dMdend income but offered little opportunity for capital appreciation
The Securities Portfolio That Susan Lussier Inherited

Now that Susan owns the portfolio, she wishes to determine whether it is suitable for her situation She realizes that the high level of income provided by the portfolio will be taxed at a rate (federal plus state) of about 40% Because she does not currently need it, Susan plans to invest the after-tax income primarily in common stocks offering high capital gain potential During the coming years she clearly needs to avoid generating taxable income. (Susan is already paying out a sizable portion of her income in taxes) She feels fortunate to have received the portfolio and wants to make certain it provides her with the maximum benefits. given her financial situation The $10,000 cash left to her will be especially useful in paying brokers commissions associated with making portfolio adjustments
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Bonds Total Current Cost Yield nterest Par Value S&P Income Price (S) s) Quoted Issue Rating () Delta Power and Light 10.125% due 2029 40,000 4,050 98.000 39,200 10.33 Mountain 30.000 | Water 9.750% A 2,925 102.000 30.600 19.56 due 2021 California Gas | 9.500% due 50.000 | AAA 4,75097.000 48,500 9.79 2016 Trans-Pacific 20.000 | Gas 10.000% IAAA 2,000 99.000 19,800 10.10 due 2027 Public Service | 9.875% due | AA 1,975100.000 20,000 9.88 20.000 2017 Common Stocks Number Company of Shares DividendDividend Price per Total er Share Income Dividend Yield (%) Cost ! Beta International 2.40 4,800 22 4,900 0.97 10 10.91 2,000 Supply 4,500 17 2,000 0.85 8.82 3,000 Black Motor 1.50 Mutual Funds Number Fund of Shares Dividend per Share Income () Dividend Price per Total Income Share Dividend Yield (%) Beta International 2,000Capital Income 0.80 1,600 10 20,000 1.02 8.00 A Fund Grimner 1000 Special 2.00 2,000 15 5,000 1.10 7.50 Income Fund Ellis Diversified 4,800 1:2 8,000 0.90 0.00 Income Fund1.20.4 Tota annua Portfolio value: current income:$338,000 yield $33,400 Portfolio 9.88%