Alice and Henry are 50 and 60 years old respectively and residents of The United States of America. Both are healthy and expect to live until 80. They have two children aged 35 and 30 and one grandchild aged 4. Alice and Henry started a company 20 years ago and have been the sole owners, refusing to sell as Alice believes that the business is only successful because of their knowledge.

The company is currently worth 15,000,000 total. Assets - Alice has 10,000,000 in a stock portfolio which she inherited from her mother. 1 million is held in stock ABC Corporation and her mother promised to never sell these shares because she was close friends with the founder. Alice has decided to respect this wish and will use the remainder of her portfolio to sell if she ever needed the liquidity. Alice lives in her family home which is worth 700,000 and there is no mortgage Living.

The family's living expenses are 150,000 and are expected to remain the same through retirement. Pension - Alice expects to get a pension of 130,000 per year through retirement beginning at age 60. Education - Alice would like to have 1 million set aside for her granddaughter's education in 20 years. Gifts - Alice would like to donate $2 million to her alma mater in 3 months while Henry would like to donate $1 million to a baseball charity in 9 months. 

Both goals are considered a high priority. You have interviewed Alice and Henry and have gathered the following observations:

1) Alice only wants her portfolio invested in U.S. stocks because she believes they are the best stocks and recently read an article that confirmed her views.

2) Alice wants her portfolio equally invested in 5 securities with 40% in bonds and 60% in equities.

3) Alice wants to buy bitcoin because all of her friends are talking about it. 4) Alice believes interest rates are going to decline and the yield curve will flatten Available List Fixed Income IShares 1-year bonds IShares 7-10 year bonds IShares 20 year bonds IShares 20 year International Bonds Equities S&P 500 ETF World Developed Market ETF Alibaba Microsoft Corp China Import-Export Bank Visa Samsung Walmart

 

Identify Alice's ability to take risk and explain two reasons why.

Identify Alice's willingness to take risk and explain two reasons why.

 

Comment on Alice's overall risk tolerance and whether her asset allocation is appropriate.

Identify & Explain 2 behavioral biases exhibited by Alice with evidence from the case.

 

Identify three equity securities from the list that would be appropriate for Alice's portfolio given her diversification request.

Identify which two fixed income securities from the list that would be appropriate for Alice's portfolio given her diversification request.

Identify one fixed income security that would not be appropriate for Alice and explain why.

Identify one equity security that would not be appropriate for Alice and explain why.